Saturday, November 13, 2010

Why Traders Need StopLoss

Trading decisions are often made with technical indicators. For example, on my screen, I have an indicator called the TA Insync. I smooth it to reflect a trend rather than just momentum. A buying opportunity comes when the indicator turns up and / or the indicator cuts above its signal line. reverse for selling. It is just like the MACD. Sometimes, in a fast moving market, prices will suddenly go against me, the trader. In such cases,the change of direction in indicators will follow, but after a few price bars. To protect from this 1 in 10 occurence, it is important to have a stop loss in place, always. If we do not have a stop, then a sudden change in prices will make the trader into a frozen rabbit - unable to move while the market goes against him.

I am showing the chart for 60 minute SIlver where a sudden waterfall decline left the indicators behind. A stop loss is neccessary to protect traders from sudden events.


5 comments:

pranav.kulkarni said...

Dear Sir,
your presence on television is highly missed by us all. Although your blog keeps educating us, but I request you to come on any channel of your choice. We will start watching that channel, if we are not watching the same. once again request you to provide the schudule, so that your live bytes will not be miss.

regards,
pranav

rocky said...

Importance of stoplosses can never be undermined, but during volatile sessions where stoplosses get easily triggred but only in minutes time markets moving the rightway making us curse our own stoploss, so what are the other strategies in such situations, i have tried hedging intraday positions in such situaitons untill the volitility ends or trend is clearly established and sometimes booked profit in both.

and sometimes i get the trend correct but get struck with my hedge. i Guess closing the hedge is as important as a stoploss.

ANAS said...

Respected SIR, its me again....

HAPPY DIWALI .

I was looking at daily charts of NIFTY with the indicator MACD.
I used three parameters for MACD indicator on NIFTY daily charts. They were
8,17,9
12,17,9
12,25,9

IN all the three parameters, FAST LINE & SLOW LINE , on MACD, reached a certain level during the period from 20/09/2010 to 15/10/2010.
(NIFTY MADE A HIGH OF 6284 during the above period)

1) On MACD (8,17,9) = FAST LINE plotted a high near 120 region. Sometime, in the last 10 days of Sept 2010.
2) On MACD (12,17,9) = FAST LINE plotted a high above 50 during the same period.
3) On MACD (12,25,9) = FAST LINE made a high above 120 , during the first 8 days of OCT 2010.

After that, all the three MACD parameters gave a BEARISH MOVING AVERAGE CROSSOVER. Drifted down, and rised again , during the first week of NOV 2010, with a BULLISH MOVING AVERAGE CROSSOVER.

Along with all that, NIFTY plotted an intraday high of 6338.50 on mahurat day, closed at an all time high of 6312.45, on MAHURAT DAY.

CRITICAL POINTS TO BE NOTED AFTER FRIDAY'S CLOSE (i.e., 12/11/10)

FAST LINE on MACD charts (in all the three parameters); plotted a lower high than the previous high, and gave a BEARISH MOVING AVERAGE CROSSOVER.

MY QUERY IS :

1) Can the whole movement be considered as A NEGATIVE DIVERGANCE on the daily charts , (of nifty with macd indicator)
2) if yes, than does that mean , that there is further downside in store for the NIFTY INDEX.
3) Can the divergence fail, and when it is possible to confirm the failure.

I HUMBLY REQUEST YOU TO GIVE YOUR VALUABLE OPINION ON MY OBSERVATION.

THANK YOU, FOR YOUR PRECIOUS TIME AND PRICELESS WISDOM...

Yours,
Anas Elias Batla.

segviola11 said...

Sir,

I was also facing the same issue with stochastics for day trading with on one minute average chart for Nifty. But I found that all oscillators have this disadvantage with water fall decline.

So i used MACD to complete it. In the macd when the divergence bar is lower / smaller than the previous one, I go short. The reverse holds for going long.

Please suggest me on this method.

Regards,
Murali

Pankaj Pandekar said...

Dear Sir,
Where do you get your live feed for stocks and commodities?

Regards,
Pankaj