Stop Losses and Scaling

[Anonymous]

I would like to hear your general principles regarding two topics: stop losses and scaling (aka leveraging)?

Specifically, I’m interested in your answers to the following questions:

How do you set your stop loss prices? Is the price based on your confidence in the trade? Is it event or news-based? Do you use technicals (i.e., fibbonacci levels, moving averages, previous support/resistance, etc.)?

Do you scale into positions (i.e., hold back some capital to reduce your cost basis)? Why or why not?

Thanks,
-Neal

[Cam Hui]

Hi Neal,

I hate to sound wishy washy but there is no single best answer to that question. How you manage risk is a function of:

1) Your risk tolerance and pain threshold
2) The success rate and return profile of your trading strategy

In order to really optimize your trading, you really have to understand how (2) behaves under different market conditions. Until you do, it will be difficult to achieve optimum results.

[Keith]

For me this simple. If the reason I bought the stock is no longer present I sell it. Need to have discipline and agility to recognize when buy decision is not working.

[Author]

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