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All prices are in U.S. Dollars

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# SD Stops

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This older calculator is not available at this time.  For the new stop loss calculator, please  Click Here.

As a sound statistical measurement of price variance (volatility), the standard deviation can be used to determine stop-loss levels.  SD Stops computes a standard deviation stop loss by measuring all the 2-day true ranges (TR) for the past 20 trading days and computes the standard deviation (STDV) of the true ranges.  A month of data (20 days) is considered suitable because that amount of time makes it sensitive enough to changing price behavior while at the same time giving output that is statistically valid for computing standard deviations of share excursion (volatility).  SD Stops cam calculate stop-loss levels for long and short positions.  The standard deviation, or multiple thereof, can then be added to or subtracted from the High, Low, or Close (depending on the user's preference.

By applying the result of these computations as a trailing stop, the unnecessary loss of equity because of improperly placed stop losses can be reduced considerably.

Statisticians consider the standard deviation to be the best and most statistically valid measurement of variance (in this case, stock volatility) available.  By taking a sample of 20 days, a standard deviation can be computed that gives a relatively accurate estimate of price excursion beyond the limits of the data sampled.  An easier to visualize illustration is its application to the measured heights of men.  A standard deviation can be used to estimate the full range of heights of 10,000 men in an arena by taking a random sample of 100 of those men (assuming the 10,000 men in the arena are randomly distributed by height and that the 100 men are selected randomly).  The standard deviation can even give a relatively accurate estimate of how many men in the arena are 6'8" even if there are no men of that height among the 100 men measured.  Fairly accurate estimates can be made because the frequency of occurrence of various heights in a population follow what is known as a Gaussian distribution or normal bell-shaped curve.  The same is true of IQs the weights of people, muscular strength, and so on.  Many traders also consider it to be the best way we have of estimating the probable range of the price surges of a stock.  Price surges represent volatility (risk).

This tool is probably one of the simplest tools available anywhere for calculating stop losses based on the standard deviation.  It is so simple to use that a User's Guide is not necessary.  All explanations needed are included on the "SD Stops" page, though we will probably include some procedural suggestions in a cover note we provide those who place an order.  Basically, a person enters a 1, 2, or 3 in cell C-6 to base stop losses on the highest high, low, or close, respectively.  A number from 1 to 3 is usually entered in cell G-6 to define the standard deviation multiplier or "weighting" that will be used in the computations.  Decimals are also acceptable (2.53, 3.45, etc.)  (see the "SD Stops" page for details).  If an "S" is entered in cell E-6, the program will assume it is calculating for a short position.  Once it calculates the volatility figure and applies the user's choice of weighting to be applied, it subtracts the calculated amount from the high, low, or close for a long position or it adds it to the high, low, or close for a short position.  .

Why data input is not automated.

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