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.

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Information here is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision. HAV Trading is not suitable for everyone – ensure you fully understand the risks involved and never risk more than you can afford to lose. Commissions, fees and other charges can reduce returns from investments. Tax treatment depends on individual circumstances and may be subject to change in the future. Past performance and forecasts are not reliable indicators of future results. The information here is not intended to be and shall not be deemed to be an offer, invitation or inducement to invest in any investment, nor to provide or constitute any advice or recommendation in connection with any investment decision. The user agrees that the author and publisher will accept no responsibility or liability for any loss/losses caused either directly or indirectly as a result of using the product or following its signals or methods generally. This includes problems with software, and any errors or omissions. Past performance is not necessarily a guide to future profitability.
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