Do you use stops and targets in your longer-term investments? What techniques or features of StockCharts.com help you set them accurately? The Parabolic SAR is a guide, but standard parameters yield a rather loose initial stop point.
Trading experts like Alexander Elder or Seykota advocate the use of stops. Others, like the Motley Fools, follow Buffet's approach and do not use them. I am in Elder's camp, but see my exposure to another flash crash or to sharpies hunting for my stop in less liquid positions.
If you do not use stops, what StockCharts features do you use to help protect you from severe draw downs?
One of the benefits of technical analysis is that you can find logical places to set your stops rather than trying to use a P/E ratio that looks better and better as the stock fails. Fundamental analysis does not offer logical stop setting.
Dr. Van Tharp offers some very good advice on setting stops. The setting (mental stop or actually entering it) of the stop also helps you set your position size. Dr. Elder also offers great advice on this as well. This is a brief summary.
One of the main ideas behind setting stops is to protect capital, to let your winners run. You can also use mental stops, but most technicians agree that the stop is one of the primary benefits of technical analysis.
Lets say you are trading the Tom Demark 11-day breakout. A stock is making new 2-week Highs. When you enter the trade, the best time to enter is as the trade starts to move. It is also a time when the trade falls apart. In this example, the trade fell apart almost instantly 4 times in a row. See the black lines for the setting of the stop at the 22-DMA (one-month moving average).
You can look on the chart and pick the same as your entry price, or the 20-dma, or a lower Bollinger Band (or anything else) as your stop. The difference between the buy price and the sell price is your risk on the trade. I have picked a chart in a downtrend to illustrate how the stops at the 22-dma would avoid serious losses. This chart also shows how sensitive the breakout location is to failure.
–Greg
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