2

I use stop losses on all my stock holdings (manually trailing using the ATR). Some mornings, though, the open price on a stock is lower and my stock immediately sells. Granted, it might close lower than the open, in which case I would have sold anyway. But sometimes it closes higher.

In general, should you keep stop losses on overnight or is it a bad idea? I feel like it's probably fine, just wanted to know what other people are doing.

  • 1
    The purpose of a stop order is to get you out if the stock hits your price. If it's hit and you sell, it's mission accomplished. It's a given that stock price varies and that after your stop is hit, price could continue down or immediately reverse and make you regret having sold. That has nothing to do with using a stop since the future is unknown. If you are unhappy with the frequency of the stops being hit and you are willing to take on add'l risk, widen your stop. – Bob Baerker May 10 '18 at 14:32
3

Yes you should be keeping your stop losses on overnight.

If you are getting stopped out first thing in the morning is it because prices had already fallen the day before but not hit your stop yet?

If this is generally the case then you would have probably been stopped out eventually, as the stock may have started to reverse anyway.

Or is it the case that the prices where near their highs at the close the day before and it has just opened way down the next morning?

If this is the case, you might be trading very volatile stocks. Does the price gap widely at open (either up or down) on these stocks. If this is what is happening you might want to either avoid these volatile stocks or implement a wide stop loss (increase your ATR multiple) to avoid getting whipsawed out of your trade prematurely.

| improve this answer | |
  • thank you, that's very helpful! i use CLOSE - (ATR * 1.1). do you have any other advice regarding stop loss price? – Keith May 23 '18 at 21:25
  • 1
    Are you using daily charts and daily ATR or weekly charts and weekly ATR? Using a ATR multiple of only 1.1 means that you are using a very tight stop just larger than the average daily range, that means you will be getting stopped out if the range is slightly larger than the average. Most traders using ATR multiples as their stop levels use between 2 to 4. Even 2 would be a very tight stop, and I would only use a 2 multiple if I had already made some good profits buy just wanted to see if prices moved even higher. I would generally be using between 3 to 4 multiples. – Victor May 24 '18 at 0:56
  • Thanks Victor! in retrospect, 1.1 doesn't allow for much market performance, huh? I think I'll be trying 2 from now on. – Keith May 31 '18 at 20:49

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.