What are Stop Loss Strategies?

How do you keep your emotions from getting the upper hand when you invest? Create and follow a good exit strategy!

It’s been widely suggested to investors that you need to maintain a stop loss. Many have recommended a specific trailing stop percentage as a blanket for all stocks.

This could be a good strategy. But…

Is it a good idea to use the same percentage trailing stop for a safer stock like Walmart as compared to a more volatile stock such as Tesla?

TradeSmith has taken the typical trailing stop to another level. Instead of a blanket percentage, he has created algorithms that evaluate each individual stock’s behavior to discover their personal volatility levels. We call this the Volatility Quotient, or VQ%.

This was a first, but it wasn’t the end! He took it another step further and created an indicator system. They’re the Stock State Indicators. They tell you the health of your stocks.

Here at TradeSmith we believe in empowering our users to choose the methodology that best fits their risk tolerance and investing goals.

When you create a position in TradeStops, you have many exit strategy options at your disposal.

NOTE: for more information on Alert Types, click here.

What Stop Loss Strategy would be best for you?

Well, this all depends on your personal risk tolerance. You may be willing to take on a position that is stopped out based on one indicator and safe based on another. Your friend might only take on a trade that is not stopped out but riskier. TradeStops’ suite of tools can help both you and your friend decide on the best stop loss strategy.

Let’s look at an example of a stop loss strategy.

Say you recently purchased Bristol Myers (BMY). It’s somewhat volatile stock at 17%, and you notice that it is already stopped out based on the Stock State Indicators. You still want to stay with the trade, so you could employ the Volatility Quotient stop loss strategy.

stop loss strategy
NOTE: SSI and VQ data is as of Aug 2017

This allows you to stay with your position while also removing emotion. Once the position is stopped out based on the VQ, you could then decide to exit the trade.

Now, your friend is not willing to invest in something that is stopped out based on the SSI. He is, however, willing to take on a riskier stock. He has invested in Newmont Mining (NEM). The VQ for NEM is considered high risk at about 34%.

He decided that he wants to be stopped out based on the Stock State Indicators, so he has set that alert for his position.

stop loss strategies
NOTE: SSI and VQ data is as of Aug 2017

Once Newmont gets stopped out, he could then choose to exit the trade.

How can I quickly research a new position for a good stop loss strategy?

This can be done in our Stock Analyzer research tool. After you log into TradeStops, simply click on the Research tab in the upper black menu bar. Then, click Stock Analyzer.

click the stock analyzer

Now that you opened the Stock Analyzer, you’re ready to research a stock. In the search box, type the ticker that interests you. A list will appear. Click on the ticker in the list.

type the ticker

Remember, don’t type in any special characters when entering the ticker. Just start typing the letters of the ticker, and then select it from the list that appears.

After you select the ticker, decide if this position will be long or short. Next, select an entry date. Then, choose to adjust for corporate actions. Finally, click analyze.

fill out the stock analyzer form

The results will then display for you. Stop loss strategies are on the right side of the page.

stop loss strategies
Note: Results as of this writing in Aug. 2017

In this section, we tell you about the SSI, VQ, and a trailing stop.

First, we tell you what color the SSI is. If you only want to invest in something that is green, you will immediately know if this position is right for you. In this case, for MMM, it is green (as of Aug. 2017).

Next, take note of the third column for these three stop loss strategies. These stop prices tell you when you would be stopped out for the position. You can compare this price to the latest close. The comparison can help you decide which stop loss strategy would work best for you.

Finally, did you notice the small pencil to the right of the 25% trailing stop? If you click that pencil, you can change the percentage.

keep emotions out of investing

Just click OK after you enter the new percentage. (Remember, you don’t have to type any special characters like the percent sign. We do it for you!). After you click OK, the results will be updated.

updated stop loss strategies

From there, you can compare the stop price and latest close again. When you are done with the comparison, select the stop loss strategy that is right for you.

What’s the Point?

The point is to have a Stop Loss Strategy and stick to it. If your strategy was to sell when “X” happens and “X” happens, you would want to act on it.

TradeStops can help you do this with its unique suite of tools. They help you make sound decisions even in the face of emotions such as greed, fear, or attachment/loyalty to a particular company. TradeStops’ algorithms see no emotion.

So, decide on your Stop Loss Strategy, and stick to it. Don’t be blinded by emotion.

Maximize your profits and minimize your losses,

Customer Success Team