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Standard Deviation (Volatility) Stop Losses

SD Stops

A Standard Deviation Based Stop Loss Calculator

This image shows the layout of SD Stops.

The standard deviation is the statistical tool used by statisticians to measure volatility (risk). SD Stops uses the standard deviation to determine statistically valid stop-loss levels. It computes stop losses for both long and short positions. When implemented as trailing stop losses, such stops can help prevent the unnecessary loss of gain due to a stock's advance.  The standard deviation is the best and most statistically valid measurement of 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. For example, 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. It is also the best way we have of estimating the probable range of price surges of a stock. Price surges represent volatility (risk). For a discussion of this, see  Stop Loss Probabilities     

This tool is probably the easiest tool 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 this page, though we will send some procedural suggestions in a cover note to licensees of the program.  The program is designed to monitor up to ten positions.  For example, for the first position , a person could enter an "S" in cell C-6 to calculate stop losses for short positions, and leave cell C-6 blank for long positions.  He would enter a 1, 2, or 3 in cell E-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 make the tool weight the standard deviation measurement by the entered amount when computing stop losses (one standard deviation, two standard deviations, etc).  That is about all there is to it.  Of course, the data must be entered with the oldest data at the top in row 8 and the latest data at the bottom. 
The program also has a module that calculates Fibonacci retracement levels.  It is identical to the module in Stops, and it is demonstrated in the video for that program.

You must be able to open and use an Excel 2007 spreadsheet with macros (.xlsm files) on your computer to be able to use SD Stops. To test your system, click on the following link. It will take you to a page where you can download a small Excel spreadsheet with a macro (SD Stops has a few macros).  If you can enter a number and cause the spreadsheet to recalculate, and if your system can pass the macro test provided, then you should have no trouble using SD Stops on your system.  Go to the test page.

The Cost

The use of SD Stops for a year costs much less than the price of a subscription to the average stock market newsletter. The average market letter consists of 8 to 12 pages of opinion. On January 22, 2001, Money reported on a survey it made of 61 market letters. The average annual subscription price for these newsletters was $220.46. We have not checked lately, but we are sure prices have gone up considerably since then.  A simple cost of living adjustment through August of 2013 would increase the price to $290.48.  SD Stops also costs less for six months than an adult ticket to Disneyland for one day (currently, an adult ticket for one day costs $92). The price for using SD Stops for 6 months is $75, but there is a discount when a full year is paid in advance.  Better stop loss placements can easily translate into far more in profits and savings than the price of using SD Stops. Even one well-placed stop loss might save many times the cost for a year of use.

Ordering and The License Agreement

Read the License Agreement for details before ordering.  To read the License Agreement, click on Agreement.   An order cannot be transmitted to us unless you acknowledge that you have read the License Agreement.

Previously, we did not offer a trial period because we could not turn the tool off remotely once we sent it to a user. We believe we have solved that problem. We can now program the tool to automatically shut down if new codes are not entered after a trial period. See the License Agreement (above link) for details about the trial period.    If you are interested, click on summary and opportunity to order.

Click on the following link to learn about our other stop loss calculator.  Stops 


Other Stop Loss Related Information On This Site

Stop Loss "Psych-Outs" Stop Losses and the 4-week Rule
Stop Losses and Probabilities Stop Losses and Risk Control
Stop Loss Relation to Diversification Stop Loss Long-Term
Stop Losses Getting Triggered Stop Losses and "Normal Fluctuation"
Stop Loss Information Stop Loss Tool

For more information on standard deviation and its meaning and use in stop loss calculations go to http://www.stockdisciplines.com/stop-loss-probabilities



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