Stop Losses for Position Traders.

Anshul TPT Writes:
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I normally follow EOD CHARTS as Im not a day trader.
Therefore logically my stops should be placed on a closing basis.
However this becomes too risky as nifty is a wild creature.
HENCE Im forced to place stops on an intra day basis.
Many a times these stops get hit on an intraday basis but the closing price turns out to be far away from the price.
This causes great frustration.
My Notes:
Traders who trade off End OF Day charts should try to place their stops on a closing basis. This ensures that intra day volatility does not affect the trade. The closing price represents the final convergenc of views, therefore it is the best measure of deciding to stay in the trade or exit.

The risk is that by the time the close is reached, the market may have moved significantly away from the trade, causing large losses.
But there are rewards also. First, intra day volatility is avoided. Second, sometime the close may provide a more favorable price to exit.

There is a trade-off. You should examine your charts for a number of months and ascertain the type of stop loss which provides superior results. If the close only stop loss is superior then you have to sacrifice the gains that may sometimes be possible on intra day stops.

It’s not easy. But, if your concepts are clear, your volume is within limts then you have to condition yourself to accept the whipsaws that every strategy will cause.

Cheers!