lowtrade

[lowtrade]

Trade planning

Does setting a -4% trailing stop sound normal for an investor?

There is no normal. It's based on the stock involved historical volatility. Some stocks will flux 4% all the time, some won't. Check the ATR indicator for your stock.

Is there a general acceptable loss and acceptable gain ratio for investors?

The better one's trade success rate. The larger the ratio can be. You need a personal success rate to judge what's good for you! If you close 1/2 wins, 1/2 the gain works well. If 1/3rd think 1/3 loss from gain. This is more of a rules based trading option. Just run some numbers.

At loss of 1/2 the gain, once you have 1 win it takes 2 losses to break even and 3 to lose money.

At loss 1/3 the gain, 1 win will take 3 losses to break even and 4 to lose money.

At 1/4 the gain, 1 win will take 4 losses to break even and 5 to lose money.

So the better your close ratio the larger the gain/loss ratio can be. But with this you have to keep in mind when setting up your trade plan, to use a position sizing strategy. Keeping cash involve in each trade equal and looking for close to or equal gain targets. The logic in this approach goes out the door if your trading $10k on a 10% gain target and $10k in a 5% gain target. The profits and losses just won't balance out. And you will need to lower cash for large gain plays and increase cash on small gain plays. To have a balanced position size. If you want the win/loss ratio approach to make sense.

Position sizing.
http://www.investopedia.com/terms/p/positionsizing.asp