Where Do I Place My Stop?

Hello everyone, thanks for stopping by. Today we are going to go over a few different techniques you can employ when trying to figure out were to place your stop orders.

First I always place a stop right after I place my opening order into a stock, this way I am setting my risk ratio at the very start and also take my emotions out of it from the get go. It can be pretty hard to take when it feels like you were the one idiot who bought the top, by setting a stop when we open our position we keep our ego out of the equation.
There are many different ways to determine were to set an initial stop, but I like to base it on the volatility of the stock. There are a few ways we can find this info but I like to look at a technical indicator called the Average True Range (ATR). Basically this indicator averages the daily price swings in a stock, it is usually an average of the last 14 days. If you would like to learn more about this indicator check Stockcharts.com.
Let me show you an example of how I would use this to place my stop.



Here is a stock that I have traded in the past that has been on a great uptrend over the last few weeks. As we can see around the first of July this stock started dropping and corresponding with that we see the ATR started rising and continued to a high of just under .60. Now if I was entering a position today there are two ways I could use this to set my stop, first I could set it at the high of .60, this way I assure myself that I wont get shaken out of this stock because of its normal volatility. Second I could set it at its current volatility of .50. This way I wont get shaken out due to its daily swings but if I do get stopped out I know that there is possibly something very wrong with this stock. Of course we should not just use this as or only reference. We should also look at support and resistance areas in the stock chart as well. For instance we can see that $7.25 is a strong support area and taking into account the current ATR of .50, we know that if it falls bellow $7.25 it has violated both major support and the daily range and we need to get out of this stock.

I hope this has given you all some new ideas and helps your trading in some ways. If you have any questions or comments please post or email me. Also for my most current stock picks check out my profile at SocialPicks.