On stop loss strategies
The True Range stop will adjust to the stock’s volatility - we can’t use the same per cent rule on stocks like the sleepy Shoppers and the volatile RIM. – the trick is to calculate the True Range and set your stop at the stock’s weekly low less the True Range
For RIM on the week of March 13, 2009 the high was 53.16 and the low was 45.56 and the prior week close was 46.60
We now need the greatest of the following:
The current high less the current low. (53.16 - 46.56 = 7.40)
the absolute value of the current high less the previous close (53.16 – 46.60 = 6.56).
the absolute value of the current low less the previous close (45.56 – 46.60 = 1.04)
The greatest value is 7.40
At the close of March 13,2009 - RIM’s True Range Stop is set at the low less the True Range (45.56 – 7.40 = 37.96)
Do this once a week on your volatile traders and never lower the stop
RIM – and the True Range
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2 comments:
Bill, Thanks for this post. I was looking for a way to have a better handle on stop loss. Your example has a math error (current high less the current low. (53.16 - 46.56 = 7.40)
the mumber should be 6.60. I found that by trying to check my math on my stocks against your example in exel.
Bill, I screwed up, ignore my comment. I can't type very well when i enter numbers....my apologies!
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