I'm a swing trader, mostly trading breakouts. I've been tinkering with a different money management system. Risking 1% of the account, I would normally set a 4% stop loss. E.g entry $19, 4% stop loss at $18.24. With a $100,000 account this would give a position size of 1316 shares. The alternative is to risk 0.25% of the account, setting a stop loss at 1%. Entry $19, 1% stop loss at $18.81. This would give a position size of 1316 shares. The advantage of the 0.25% position size is you get '4 tries' for the breakout to work. The downside is you are more likely to get stopped out. Would be interested to hear some different opinions about the 1% stop approach.
Your stop shouldn't change if you want to take less risk, you need to place your stop at a level you are convinced of that is safe and adjust the positioning size accordingly. For example if you have a $100k account and you want to risk $1000 or 1% per trade and the stop is $0.5 away you buy 2000 shares, if the stop is $1 you buy 1000 shares, ... In my experience a stop cant be a fixed % or price since it is different for each position you take.
Exactly right. Plus, stops should be set based on specific technical signals first, then sized accordingly. Real upcoming Example: I want to buy a breakout in SCO if it gets over $18. I will use 17, prior day's high as stop. I am willing to risk $200.. so I will buy 200 shares. Great topic
If your a swing trader u can use itm options i think they r better can you u can Still capture the upside and the stop is embedded in it so u can avoid 100% whipsaw
Downside being time factor, it can stay the same and you still lose money, but in general yes agreed. Also no Stop loss, so it could take a hammering become worthless then reverse before expiry and get back to profit, where as a stop is lost on hitting. just keep the option value, incase of a 100% loss your Stop risk amount, then only trade 1. Actually trade 2, 1 Call and 1 Put, covers you for big market moves either direction.
Itm options have little time value depending on what he is trading that can also be offsetted by selling and otm option which can get rid of the time value all together and u have a close to delta 1 as long as the underlying doesnt make a fast move u can constantly roll the position dont forget he is a swing trader so depends are you trading wfc or tsla as far as put and call waiting for a big move in my experience u pay just as much waiting most important thing in options is not to pay too much if any extrinsic/time value
What do you mean by the stop is embedded in it? If you buy an ITM call and the price goes down, the value of the option goes down, there's no stop. Typically they are expensive, so if you just let it expire you could lose more than you would have with just trading the stock?
Depending on his stocks category and his stop loss and what you define as expensive is subjective And embedded meaning your loss is fixed, expensive your comparing it to otm options that yes r cheap but are like a monthly utility bill add up and add up, aside from dividend i can see ever how a stock outright is better than itm option
%% Exactly; + his larger stop sounds much better unless he is daytrading. Since he mentioned swingtrading; a1% stop sounds useless except to waste time + money. However if he wants peanut profits, 1% swing trades stops may work with one share/most likely find a profitable pattern with SPY before he ground it down to zero. Also be alert for market turns around1% so dont be wooden about exactly 1% plan with one share. 1% on one share of qqq sounds like a waste of time -its to vol...…………………………...