What
does stock trading have to do with poker anyway? Well of course
the gambling nature of both comes right to mind, but more importantly,
both the experienced short term stock trader and the skillful
poker player continually have to deal with the ups and downs
of positive and negative earnings cycles. Both are also interested
in when to get out of certain investments or games at the most
profitable time. . One way to approach this is with a floating
stop-loss. It's almost too simple to call a strategy but here's
how it works.
Suppose our stock market trader buys a fairly volatile stock for
$1000. He knows that the equity has a history of regular up and
down price cycles and looks like it might be on the verge of a
substantial upside run. . However, it could also start right off
going down in price. He doesn't want to get killed if the stock
takes a major loss in price. On the other hand, if it should make
a big upside run, then he would like to hold and sell at a price
close to the peak of it's run rather than sell too early and miss
out on much of the upside gain.
Our trader
decides that if his short term purchase doesn't appreciate
as expected and should actually start out losing money, then
he can live with a 15% loss but not any more than that. He
would then set his stop-loss at -15% of $1000 or a minus $150
which would make his starting sell-out price $850.
Now instead
of that, suppose the stock should start out increasing in value
as predicted. The $150 stop-loss is carried forward in this
case too. . If the price should go up $50 making the equity
worth $1050, then this would also raise his sell-out price
by $50 making it $900. . Likewise if the price should then
increase to $1500, then the sell-out would be $1500 less $150
or $1350. . In other words, in this case the stop-loss sell
price is always $150 less than the highest price that the stock
reaches.
A floating
stop-loss can be used succsessfully in quite a few poker and
other gambling game conditions. These could be limit poker,
caribbean stud, three card poker and similar games that tend
to cycle short winning and losing streaks. There is no cut
and dried formula that I can offer regarding stop-loss percentages
or amounts because all game conditions are different. . You
might want to start with something as simple as a percentage
of your starting table stake or session bankroll. On the other
hand something like ten times the top bet in a limit poker
game might work. An example of this would be a $40 stop-loss
in a 2-4 limit poker game.
Whatever
you come up with is of course subject to change and adjustments
as you see fit and will give you a useful money management
tool to use when you want. ::
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