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Alex K

Swing trade Risk Management (stop loss)

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Hi All,

Is there any way to manage risk in an overnight swing trade using stop loss or some other mechanism?

Any specific order type available that could stop out from a position during pre market or aftermarket sessions (including gap up/down)?

Some trading script linked to IB\fix or TD running on 24/7 monitoring price can close position?

I'm new to swing trading so trying to figure this out - any advise would be appreciated.

 

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Hi Alex

There is really no way to manage risk overnight. Once the markets are closed it is a done deal and you are stuck in the position overnight until the open of premarket.

I do not think that Stop loss orders will fill in the premarket or aftermarket. If you enter them they will wait for the open of regular trading hours.

You can watch them and set alerts but orders need to be entered as limit orders after regular trading hours.

Manage your risk with research and share size.

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Is that Brian Pezim the father of Tequila above me?!

 

 

Yes there is a way it is by hedging with options.

If you are afraid of slippage from gap ups / downs you can hedge by buying a call or put against your position.

Example:

Long 1500 shares XYZ @ $20.

You set a stop loss at $19 GTC.

You also buy a PUT of 15 contracts at a $19 strike expiring a two weeks away.

If you woke up the next day and the stock gapped down to $16, your GTC stop loss may not have activated.

However, you would have the right to exercise your Put, selling your 1500 shares at $18!

Hedging is legit.

 

OR if you are lucky enough and your stop loss did activate on your shares for that loss, then you can trade that PUT option outright and make profit on that premium increase!

There you go!

 

Now your job is to determine what premium you want to pay an option seller for that protection.

It can easily eat into profits if you aren’t careful.

 

However you could offset that premium by selling a call against your shares (covered call), but that’s more for investments rather than swing trades.

Good luck!

STONKS!!

Join me in my Trade Journal livestream (Just type in my name in YouTube) in the morning if you have similar questions!

Edited by Bailey Nevener
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Hi Bailey,

 

Thanks for your reply. I noticed most traders don't talk about using options for risk management, is there a reason for that? What if I'm buying less than a 100 shares in a stock, how does that work?

 

I was hit hard yesterday with HAE gap down by 35% reducing my capital value by 10%. Worse my stop loss limit order did not execute due to not fulfilling the specified limit. I have a full time job. and I set automated orders, but that didn't protect me and I needed to be at the platform.

 

I don't understand something, if all the advice says we have to sell and accept any loss rather than hold and wait, why not set the stop loss for market price instead of a specified limit? The advice also says use stop loss limit.

 

Thank you,

Khaled

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On 4/20/2021 at 8:12 PM, Khaled83 said:

Hi Bailey,

 

Thanks for your reply. I noticed most traders don't talk about using options for risk management, is there a reason for that? What if I'm buying less than a 100 shares in a stock, how does that work?

 

I was hit hard yesterday with HAE gap down by 35% reducing my capital value by 10%. Worse my stop loss limit order did not execute due to not fulfilling the specified limit. I have a full time job. and I set automated orders, but that didn't protect me and I needed to be at the platform.

 

I don't understand something, if all the advice says we have to sell and accept any loss rather than hold and wait, why not set the stop loss for market price instead of a specified limit? The advice also says use stop loss limit.

 

Thank you,

Khaled

  

Good morning Khaled,

 

I am pretty sure that the premium of LONG options ends up deterring most from hedging their positions with them.

If you hold less than 100 shares of stock and you are LONG a PUT against it:

  •  At expiration date your PUT option will either expire worthless or be exercised.
    • Expire worthless - You lose the entire premium you paid for the option contract
    • Exercised - You will be obligated to sell shares of the stock, but if you hold less than 100 shares you will end up actually being short stock. (Someone correct me if I'm wrong)
  • IMO I would buy a LONG PUT against my LONG STOCK position only for the short term.
    • I wouldn't let my LONG PUT expire worthless because that's a lot of money lost to the wind for no reason.
    • If you detect a double top or something like that in your stock pattern but you don't want to sell shares, this may be an 'option' for you.

I'm not an expert by any means on options, but I know that they are a powerful tool. 

SHORTING options has a lot of support because of the statistical advantage option sellers have over option buyers.

 

The purpose of having a limit order is so that during the filling process of your order, you won't have a random fill super far away from the last sale price.  

Almost always after a huge spike like that occurs the price comes right back to what it was trading at beforehand.  

In other words, you are just risking getting slapped in the face prior to getting filled with your full order.

If you aren't trading with large size it really shouldn't be a problem.

Although this could be more of a problem during lower volume parts of the day etc...

 

Good luck out there,

Bailey Nevener

Edited by Bailey Nevener

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On 4/20/2021 at 8:12 PM, Khaled83 said:

Hi Bailey,

 

Thanks for your reply. I noticed most traders don't talk about using options for risk management, is there a reason for that? What if I'm buying less than a 100 shares in a stock, how does that work?

 

I was hit hard yesterday with HAE gap down by 35% reducing my capital value by 10%. Worse my stop loss limit order did not execute due to not fulfilling the specified limit. I have a full time job. and I set automated orders, but that didn't protect me and I needed to be at the platform.

 

I don't understand something, if all the advice says we have to sell and accept any loss rather than hold and wait, why not set the stop loss for market price instead of a specified limit? The advice also says use stop loss limit.

 

Thank you,

Khaled

set stop loss for market price instead of limit price is super dangerous..it likes you give a blank check to others people to take your money away...Premarket and after market, volume is thin or not much liquidity so it is hard to get out of your position. A small buy or sell can push the price up or down big.....Alerts play big roles..set bunch of alert then when it alerts you, get out

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On 3/1/2021 at 2:56 PM, Brian Pez said:

You can watch them and set alerts but orders need to be entered as limit orders after regular trading hours.

Manage your risk with research and share size.

@Brian Pez I was thinking abt this.......So I would set a LIMIT order in the opposite direction of my ENTRY to act as my STOP, similar to my TAKE PROFIT, same share size.   Then I can sleep at night ? LOL.

Reduce quantity/size since after hours are thin ensuring I get fully filled amount.

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1 hour ago, Alastair said:

@Brian Pez I was thinking abt this.......So I would set a LIMIT order in the opposite direction of my ENTRY to act as my STOP, similar to my TAKE PROFIT, same share size.   Then I can sleep at night ? LOL.

Reduce quantity/size since after hours are thin ensuring I get fully filled amount.

it does not work man...
you buy AAPL for 140 for a swing with a stop of 139
now AAPL goes to 141
you set your limit order to short at 139
you get executed immediately because short 141 is better deal than short 139
therefore you need a stop order for stops 🙂

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4 hours ago, peterB said:

it does not work man...

pity....I was thinking I could out smart them 😒

 

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Hi Alex

How is the world of swing trading going for you. I understand from your first note you are new to swing trading. Welcome to swing trading.

I have attached the weekly and daily charts for HAE for your relevant trade period. I believe you took the trade just around earnings and gap down day earlier this year.

Based on my analysis: fundamentals looked ok for early 2021 but the technicals were not suitable. I believe HAE was not a good candidate for swing trading long around the earnings announcement and pre gap down earlier this year. Analysis was favoring more towards a short trade pre-gap. Charts attached for reference.

Food for thought: require suitable financial/technical/mental/physical/availability capacity, right trading vehicle (Stock, Forex, CFD, Indices, ETFs...), fundamental and technical analysis, entry and exits. For this you need a Trading Plan to be consistent. Above all, as a new swing trader, most important is to have a Mentor. Also keeping in mind, you are a part-timer. This may take a few months to a few years to obtain high probability successful trades. 

You may want to check for some good swing trading info on TD Ameritrade Webcasts. I believe as TDA member, you have access to the instructors.

Checkout: TD Ameritrade Webcasts (thinkorswim.com).

I guess getting into a trade is not so hard, but getting out of a good or a bad trade is challenging and that will come only with experience .... it is also an individual thing ..... fear and greed.

Per your enquiry: a good mentor will know what worked for him for stop loss techniques, and may pass this on to you. This will be incorporated in your Trading Plan. I also understand that a stop loss entry is a trade order and it only works during regular market hours per Brian's note earlier. Also, it is good idea to get a good handle on simple swing trading techniques (entry and exits) first before trying out advanced trading with Options.

 

BBT-Forum-HAE-daily.pdf BBT-Forum-HAE-weekly.pdf

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