As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
|
 46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 |
As of 11/20/2024
Indus: 43,408 +139.53 +0.3%
Trans: 17,002 -26.31 -0.2%
Utils: 1,055 +1.25 +0.1%
Nasdaq: 18,966 -21.33 -0.1%
S&P 500: 5,917 +0.13 +0.0%
|
YTD
+15.2%
+6.9%
+19.7%
+26.3%
+24.1%
| |
|
46,000 or 43,000 by 12/01/202418,000 or 16,600 by 12/01/20241,075 or 1,000 by 12/01/202420,000 or 18,400 by 12/01/20246,100 or 5,800 by 12/01/2024 | ||
This article discusses what a hold time loss is, what it means to your trading, and how you can compute it for your trades.
Hold time loss is a new concept that I've researched. Simply put, it's the maximum drop below the purchase price for a stock that goes on to be profitable. It does not apply to losing trades. It's similar to drawdown, but drawdown measures the maximum equity drop from peak to valley during ownership.
Hold time loss is important because it can help you select an initial stop price. Placing a stop too close will take you out of your most profitable trades. Placing a stop too far away and you can suffer a huge loss if the trade goes against you. The hold time loss depends on an analysis of your actual trades, so it can help improve trading results.
To figure the hold time loss, I looked at all of my profitable trades and computed how far into loss territory the stock dropped while I held it. You can do the same with a chart and a calculator but it'll be a tedious process if you look at every winning trade. You can also use a spreadsheet to do the same thing.
I programmed my computer to analyze my trades for me. In one respect, it's certainly more accurate and less error prone than doing it manually. Unfortunately, matching buy orders to sell orders when multiples of each exist in one stock becomes a problem. In that situation, I just used a first-in, first-out basis. The first trade bought is the first one sold. That is sometimes not the case with my trades, but it often is.
The following table shows a frequency distribution of the results with loss size on the vertical axis and hold time on the horizontal. The one-month interval is the only one with plenty of samples. That's due to the way my computer counted the trades (first in, first out).
| Loss | 30 days | 6 Months* | 1 Year* |
| 5% | 57% | 20% | 7% |
| 10% | 86% | 42% | 29% |
| 15% | 93% | 54% | 36% |
| 20% | 98% | 66% | 43% |
| 25% | 98% | 76% | 57% |
For example, of those profitable trades held less than a month, 57% of them had losses of 5% or less, and 86% of them had losses of 10% or less. This makes sense because price often doesn't move very far in a short time. It's also a clue to how well I placed the buy price. Low numbers mean I bought near the bottom of a move and rode the stock upward.
On the other end of the table, 7% of the stocks with hold times greater than 6 months but less than a year had losses of 5%, but samples are few. This says that I suck at trying to determine where stocks are near the yearly low. In fact, I often prefer to buy as close to the yearly high as possible (riding upward momentum: buy high and sell higher).
The table shows that the longer I hold a stock, the more I'm willing to tolerate a substantial loss.
The average hold time loss for all trades is 15% with a median (mid range) of 7%. That tells me an initial stop placed between 7% and 15% below the purchase price will allow the stock some wiggle room before it takes off...or drops to 0.
If you're having trouble with placing the initial stop (large losses or frequently being stopped out), then try computing the hold time loss for your trades. It might say you're placing the stop too close, too far away, or just right for the markets you trade and the anticipated holding times.
This is an actual trade I made that you can read more about here.
I bought the stock on August 14 at 3.33 but the next day, price made a lower low, bottoming at 2.79. I sold the stock at 6.35 for a gain of 90% in 2 months.
The drop from the buy price to A represents the hold time loss for this trade. It's (3.33 - 2.79)/3.33 or 16%. Ouch! A miss by one day...
-- Thomas Bulkowski
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