Expert: Paul Henneman - 4/19/2007

Question
Hi Paul,
What is a good percentage to set a trailing stop order?
Thank you,
Randy


Answer
Thank you Randy for your question.
Unfortunately there is no easy answer to this question. Every investor is different, and if you asked 10 different experts this question, you will get 10 different answers!
The best I can do is perhaps help you think through the question, and come up with what will work best for you.
The main issue is how much risk you are willing to take. For example, if you are willing to accept the possibility of greater losses in exchange for greater returns, you could set your stop at a great percentage.
Or, if you are a fairly new investor, unsure of your decisions or think that perhaps the market will take a significant downturn soon, then you may want to tighten up and reduce your percentages.
One general rule that most would agree with is to set your profit stops at a greater percentage than your loss stops. But this also is dependent upon the individual.
I am sure that you could get a much more specific answer from others regarding this subject, but I would strongly suggest you be very careful with such specific answers. The person that gives you such specific recommendations will be projecting their investment style, needs, and risk levels on to you. This may or may not be valid. A short term day trader will have much smaller stop percentages than a long term buy and hold investor, who may not use stops at all.
Another suggestion I have would be to read some of the books by William O'Neil. He is the founder of IBD (Investors Business Daily), and goes into great detail on the technical analysis methodologies that he has used to successfully make alot of money, and in fact founded IBD on. These strategeis he employs include stops.
I hope I have at least given you something to think about. Please do not hesitate to follow up with me with any additional specifics, such as what type of investor you are, what sort of investments you currently participate in,  your experience, and your goals.

Best Regards,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com