# Notes on calculating stops and limits

One query that new clients frequently ask is how stop losses are calculated?

On page 32 of the HAV manual there is a brief explanation of where stop losses are placed.

However as we never trade the rolling daily contracts but instead use the futures contracts there has to be an adjustment made to allow for the differing  price of the future contract.

The easiest way to explain this is by using a simplified example.

Let us consider a contract where to BUY the daily rolling price at opening is 1000.

If we were using the 10% stop loss rule then the stop would be set at 900, that is 10% away or 100 points. In most cases we would have a much closer stop as it would be based on the distance to the Parabolic Sar or the 50 week moving average whichever was the furthest away from the opening price. Let us say that this is just 40 points away.

Having decided how far away the stop needs to be, we now look at the price of the future contract.  We will assume in this example that the price of the future contract is 950. So we transpose the difference of 40 points to this price to get an initial stop loss of 910.

The profit limit is always set at 5% from the opening price of the future.

Each week as the Parabolic Sar and Moving Average move up, this movement is deducted from the stop loss distance thus reducing the risk each week.

One final point; because prices are continually changing it is likely that clients will enter the contract at a different price from that obtained by myself.

The prices quoted in the newsletters are the prices obtained by me and my stop loss figure may differ slightly from yours but it should not make too much difference in the long run.