bid-ask spread max recommendation??

[actionjackson 2]

can someone please provide insights into recommended max range on bid-ask spread?

for example, recommended to stay away from stocks if bid-ask spread exceeds a certain amount?

im noticing that when im getting filled at ask+.05, im already down 20 cents on a stock with a .15 bid ask spread.

on a good day, the stock has a breakout, but on a bad day, the loss gets significant pretty quickly.
lots of the lower floats seem to have a higher spread, just trying to get more experience traders insights about this. Thanks!

Edited April 19, 2021 by actionjackson

[Bailey Nevener 83]

Good morning ActionJackson,

One of the biggest factors I would consider when answering this question is, how close is your stop?

If you are swing trading, and your stop loss is $5 away for example, then a 10 cent spread is not so bad.

However if you are trying to trade an ABCD, and your stop is 15 cents away and the spread is 10 cents, that’s 66% of your 1 Risk that you will be down from the beginning of the trade!

 

I would say the general rule is, the smaller the spread the better.  However for a function that you could follow for the more tricky situations, I stick to this:  the spread needs to be less than 25% of my stop distance.

(Ex: spread = 5 cents, stop distance >= 20 cents away)

Enjoy.