The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

Question 64—Wider Stops

Answer 3 A stop belongs outside of the zone of the normal chop of prices.

Prices meander, and the more time they have, the wider their swing. The tighter the stop, the greater the risk of a whipsaw. The whole point of using wider stops is to put them outside the zone of the normal chop of prices. The downside of using a wider stop is that by accepting greater risk per share you reduce the size of the position you may carry.