Using Staggered Stops
You do not have to set your stop-loss on your entire position at one price.
Instead, you can use staggered or bracketed stops and still mitigate losses at your desired level while giving yourself a better chance of maintaining at least a portion of the position if the stock moves against you.
The total risk remains defined.
The position is simply divided into pieces.
For example, instead of using one stop for the full position, you can divide it into thirds and place stops at different levels while keeping the overall loss within your acceptable range.
In the GLD example shown:
• One third is stopped at 4 percent
• One third is stopped at 6 percent
• One third is stopped at 8 percent
If all three stops are hit, the average loss is 6 percent.
The 4 percent and 6 percent stops are placed around higher low areas within the consolidation.
The 8 percent stop is placed just below the entire consolidation low.
This keeps the total risk defined while giving part of the position more room.
The objective is to maintain your line without getting knocked out of the entire position.
The percentages themselves are not fixed.
They are based on the structure of the stock and the level of risk you are willing to accept.
The concept is simple.
Define total risk. Divide the position. Bracket the stops around logical levels.
