Percentage Stop Losses

• You buy a share at £5.00 and decide to place your stop loss, say, 10% away from the purchase price, meaning a level of £4.00
• If you use percentage stops then you have to try and gauge the character of the market you're trading in
• Setting a 5% stop loss on Tesco is not the same as a 5% stop on Vodafone because Vodafone is far more volatile
• So perhaps a 5% stop on Tesco would have to be a 15% stop on Vodafone etc
• The disadvantage of Percentage Stops is the same as with Monetary Stops they are always placed at an arbitrary level
• But remember the critical point with stop losses; actually using stop losses is far more important than the actual level or method you use to decide where to place it

Using the Most Recent High or Low For Short-Term Trading

• Stop losses placed above a recent high (buy stops) or below a recent low (sell stops) are often used in shorter-term trading
• The previous day's high/low is a favourite place for day traders to place their stops behind
• But for short-term traders how many points above/below a recent high or low should the stop loss level be?
• Good traders tend to remain flexible and move with the underlying market fashion
• For example, say the FTSE 100 has a recent low of 4255 and the market is and has been very volatile then it would be preferable to place the stop around 15-30 points below
• Obviously if the market has been quiet then around 5-10 ticks below the 4255 level would be more acceptable - Bend with the market

Longer-term traders can also use recent highs and lows for guidance in stop placement. But instead of using the previous daily low, why not use the low of the previous week or month? This is normally a far better place to put your stop than a fixed percentage or monetary amount because again you're letting the market guide you as to where to place stops.