One issue that all traders struggle with is where to set stops. And i repeat, all traders, I don't care who you are. Many investors expend a huge amount of energy trying to decide if the magic level for stops should be 6%, 8% or 10% or even higher. Like almost everything in life as in trading, there is no "one size fits all" answer to the question. What works best one day may produce abysmal results the next. A tight trailing stop may be great in steadily trending markets but result in constant losses in a choppy market. One approach is to vary the tightness of stops on the basis of two main parameters: market bias and time frame. If you are feeling bearish about the overall market, you may tend to keep stops tighter than if we are heading up. Also, the shorter the time frame for a trade, the tighter the stop.
I tend to focus more on technical levels rather than percentages when it comes to stops. My main concern is that the technical pattern that caused me to buy a stock in the first place is still in place. If the uptrend is broken or there is technical damage, I want to make sure my stop will have me taken out of the stock. One approach that has worked well is to use the nine-day simple moving average as a stop point. A breach of that level will often signal a slowing in relative strength.
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