InvStock

* No right or wrong about placing of tight or wide stop loss – the key is to limit the risk of each trade to an acceptable level.
* If a wider stop loss is placed, then the size of trade has to be reduced to accomodate the larger price difference.
* The creator of the video prefers tight stop, and I personally think it is probably a better approach, choose what suits you.
* Regardless of whether a tight or wide stop is preferred, it should be in exactly the same place – i.e. it is not a function of where it is suppose to be but rather where your entry point is (at initial sign of turning or if you prefers to take up position after further confirmation) with respect to the stop.
* So, where to place the stoploss? Stoploss to be placed when it invalidates the set up.
* Take the trade if could get it with a good entry, else, give it a pass.
* Establish support levels, and once it is established, take up position near the congestion area and placed a stop below the support.

Some personal comments:
* Stoploss / cutloss level is more applicable for traders. For investors, it is a different approach altogether.
* For short position, apply the same stoploss approach, only that it is the other way around.
* Cut losses short and ride profit as much as possible.
* Consider average up (same sizes as initial position or reducing sizes, personally I prefer reducing sizes) if position is moving in your favour, while making sure to manage risk at all times.

Last but not least, Good Luck.

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“Don’t focus on making money; focus on protecting what you have.” 

~Pual Tudor Jones

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Okay, assuming that you have done your research, timed your entry accordingly and bought a stock that you think is going to rise both in the near and long term.

To either manage your risk or to protect your profit, you could set a Sell-Stop-Limit order, which essentially consist of 2 parts. One is the “Stop Price” and the other is the “Limit Price”.

“Stop Price” – the price of the underlying shares, when reached, your trade order will be triggered.

“Limit Price” – the price in which your trade will be at the set price or better. The Limit Price has to be lower than your Stop Price.

Caution:   If you set your Limit Price too close to your Stop Price, in a fast moving / or thinly traded market,  your order may not be executed. If your intention is to get out, regardless of price level, it is good to leave some room between the Limit Price and the Stop Price.

Examples:

Setting Stop Limit As A Stoploss Order

You bought Apple Computer shares at USD250/share.

Basing on the chart and your risk appetite, you are willing to risk only, say 8% of your position, which works out to be USD230/share. Hence, you set your stop price to be at USD230/share and your limit price to be at USD228/share. When that is set, should Apple Computer’s share price hit USD230/share, your order is activated, and your order would be filled at USD228/ share or better.

Setting Stop Limit As Trailing Stop Order

Same initial scenario: You bought Apple Computer shares at USD250/ share.

Now, your Apple Computer shares has moved to USD280/share. Say you are willing to give up 50% of your gain (50% * [280 - 250] = 15, 250 + 15 = USD265/share) or using another number that you determined using say a 50 days moving average, to continue to stay in the position. So, you set your stop price to be at USD265/share. Say, you are putting up a tight limit price because you feel that Apple Computer has enough liquidity and think that you should be able to get out pretty quickly. So, you set your limit price to be say, USD264/share.

So, should Apple Computer’s share price weaken and hit USD265/ share, your Stop Price will be activated and if things go as planned, your position will be sold out and you collect your profit of about USD14-15/share.

Here’s the important part:

Should the stock continue to move up to even higher level than USD280/share level, you should consider slowly move both your Stop Price and Limit Price up basing on the rule that you set for the position. By doing so, you allow the share price to move up, with some room for fluctuation and yet be ready to get out when there is any adverse price movement. This is what we call a moving Trailing Stop.

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"His money making style was about mammoth home runs and many small strikeouts. If there was a ‘secret’, he knew that you had to be able accept losses both psychologically and physiologically."

~ Michael W. Covel 
Author, The Complete Turtle Trader
The Legend, the Lessons, the Results
On
Richard Dennis’ Trading Style

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“If I have positions going against me, I get right out; if they are going for me, I keep them… Risk management and control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.”

~Pual Tudor Jones

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"I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell."

~Tom Basso

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“Be quick to take losses, reluctant to take profit.”

~Philip Carret

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“To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.”

“First, if you never bet your lifestyle, from a trading standpoint, nothing bad will ever happen to you. Second, if you know what the worst possible outcome is, it gives you tremendous freedom. The truth is, while you can’t quantify reward, you can quantify risk.”

~Larry Hite

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