Deep Singh

Hello.

Lets say I had a 'tip' on a share and wanted to take a punt. Now lets say that I'm very wary of such tips and the dangers of single share undiversified investments.
Now lets say I'm a bit of an idiot and want to have a go anyway.

Is there any sort of formula/method to calculate where I should set the stop loss limit so that I can take that hit and come back and buy some more at the new cheaper price. In other words even if there is short term downside movement I think the price will come up again.

I hope that makes sense

ScoTTyB

Yes, use support and resistance mainly, you can also use smoothed stochastic, RSI and MACD, personally these work best for me, although there are many others.

Timeframe of their use is also important, the longer the timeframe the more valid their signals.

warrenm2

Yes you work out how much you are prepared to lose and set your stop level there - simple!

mamoon2

Eh?

jonc

Heres a tip, Desire Petroleum PLC (DES.L)

fast bloke

Scotty and Warren are both correct, but Warren is more correct as a rule

Suresh

Or if you're a totally reckless idiot you can double your position each time there's a big drop to signiificently lower your the average purchase price. When the shares rise a bit you should then sell the increases to lock in your gain. Then tell your wife how much P/L you realised whilst skillfully omitting to tell her about the unrealised losses. Works for me

fast bloke

Tried that - she spends the profit on cloths and lets you worry about the loss. Eventually she looks a million dollars and you are constantly skint

Deep Singh

Scotty, your advice requires me to have some skill and knowledge of stock market movements and chartism etc and also watch the movement closely. I would fail on both counts mate!

The second option seems too slap dash, shouldn't the stop loss be some sort of %age of the buying price?

Suresh, I once tried that method on red and black at a casino, lets just say I'm not keen to do it again!

^OPM^

On a blue chip company i would set the stop loss at a rolling 10% of share price-but on a smaller riskier company i would allow it say a 15-20% rolling stop loss.

warrenm2

Why? Think about your answer....

Deep Singh

Thanks OPM.

Warren I get what you mean but thought there may be some majical number that minimises losses but also prevents over sensitive selling (which will produce more costs and therefore add to losses) I hope that makes sense

PeteBrant

Of course not.

It should be based entirely on what are acceptble losses to you.

Say I buy £100,000 worth of shares. To me, a £50,000 loss may be acceptable. To you, it may be £80,000.

The only person that can decide how much they are prepared to risk, is you.

PeteBrant

Why buy the share at all? Why not spread bet on it?

Deep Singh

How does that actually help? My losses will be exactly the same, it just means I don't have to put up a load of capital. There is the tax benefit, but with a combined CGT allowance of £18k I can't see that really being an issue

marky1

For exactly that reason - you don't have to put up the capital and can use it to do other things, or even stick it in the bank and make some interest on it. If the shares don't move over a year but you have the money in the bank you've still made 4% or whatever it is you can get.

john banks

City Index charges me LIBOR + 2.25% (per annum) for overnight positions. Great for day trading though. I'm only paying the bid-offer spread, which is only £10 for a buy-sell on gold which is my most common trade.

To buy actual shares I use Selftrade, and there is a £12.50 transaction charge, plus of course stamp duty. It is worth buying a larger amount to minimise the charges.

I'm very wary of tips. Often it is a pump and dump, and if not the market makers have read the news before you have and put the price up.

warrenm2

Soco FTW!