[pan]

hi, my name is pan. i am new to the forum and welcome any help.

ive seen a stock i want to trade. its $10 a share and i have $10,000 of my fathers hard earned income to invest in this share [im only kidding, its my mothers]. Risking only 2% of my capital, i buy 1000 shares and put my initial stop at $9.80. therefore risking only 2%[$200] of my $10,000.

however, this is wrong isnt it?

if i look at ATR and set an initial stop at 2ATR below the entry [long]. from

'What period should i be looking for a value of the ATR?'

'Is there a simple formula that can help me work out where my initial stop would be and not risk more than 2% of my capital?'

'following that, is there another simple formula that can help me with trailing stop losses to protect my profits?'

kind people of the forum, fellow traders. i ask you to make sense of this for me.

kind regards pan

[David Waring]

Hi Pan,

Welcome to the community.

I am not a registered financial adviser so I cannot give specific advice on this particular trade however I can talk generally about stop placement from an educational standpoint.

The first thing I would recommend is to go through Module 6 of the free beginner video trading course which talks about stop placement specifically.

It seems like you are thinking about things in the way that is outlined in the course, however you are just a little mixed up as to how to put everything together in your head.

As a starting point it seems that you are thinking about stop placement in terms of the 2% loss limit only. What I think is missing in that thought process is that most traders will not simply rely on the 2% loss limit as tool that they use to determine their stop level but will determine their stop level using other methods such as support and resistance or ATR's. Then once they have come up with an area where they feel it would be good to place the stop they adjust their position size to make it so they can place their stop there and not exceed their 2% loss limit or whatever loss limit they have decided on as a maximum per trade.

As far as what time frame to look at for the ATR I think most traders would tell you to think about the ATR as simply a tool which shows you how much volatility there is in a particular instrument. So if you are looking at the ATR on an hourly chart what you are basically seeing is the average hourly volatility. If you are looking at the ATR on a daily chart what you are seeing is the average daily volatility.

So the question of what time frame to use for the ATR really depends on how much breathing room a trader wants to give the position. In other words using 2 ATR's on an hourly chart as the stop level is going to give the position a lot less breathing room than using 2 ATR's on a daily chart.

Lastly as it seems that you are relatively new to the market I would encourage you to be patient before risking a lot of anyone's money including your parents or your own trading. While I can't tell you not to take this trade I can tell you that there are always trading opportunities that come along so if one trade is missed in order to continue to learn and get up to speed on the market there will be others.

Best Regards,
Dave

[pan]

thanks for that dave. i'll get there. I'll exercise some patience and more studying . thanks again, pan

[David Waring]

Originally Posted by pan

thanks for that dave. i'll get there. I'll exercise some patience and more studying . thanks again, pan

anytime pan. Looks like you are moving in the right direction so feel free to post questions as they arise.

Best,
Dave