Setting stop loss based on volatility

[dartMonkey]

Can anyone point me in the direction of further reading on setting stop losses when planning a trade, particularly any formulas for setting a stop loss based on the prior volatility of the share price.
At the moment I am using just a simple "if it drops 10% sell" but read recently about setting a stop loss according to the preceding volatility. Unfortunately it didn't go into it in sufficient depth.

[Phaedrus]

Here is a reference to the best volatility based trailing stop that I have found.
http://www.tradernexus.com/advancedstop/advancedstop.html

Don't neglect other indicators, though. I've always maintained that trailing stops are the exit system for people that don't have an exit system. They are way better than nothing, but are generally the last to fire and it is not hard to find other indicators that give more timely signals and generally perform better.

[dartMonkey]

Thanks Phaedrus.
Exactly what I was after.
Now if only I could afford Metastock as well ...

[dragonz]

A system that I have used in the past, for more volatile stocks is to work out the average high/low spread of the last 10 trading days and use this stop-loss until the share moves into profit. Then I set the stop loss at 2% lower then the highest low readjusting whenever a new "higher low is reached. This is good for those wanting a longer hold and stops you from being thrown out early by unusual fluctuations in the market or stop loss searching bots.

[dartMonkey]

Hey dragonz,
Does that mean that you set the initial stop loss at the price you purchased at minus the average high/low spread of the last 10 trading days?

[dragonz]

Hey dragonz,
Does that mean that you set the initial stop loss at the price you purchased at minus the average high/low spread of the last 10 trading days?

Thats correct dartMonkey. I might also add that my "stop loss" as my sell indicator is my worst case scenerio for my exit. I prefer to sell when other indicators sugest that the shareprice is losing momentem or is oversold. That way I can free up the funds to jump on the next stock that is trading outside its nomal range and due for sharp correction (oversold).

Be aware though that my trading is mostly day/short term and not suited to everyone. I sometimes wonder if less money to my brokers and a more med term approach would yeild a better return.

Suits my personality however (ADHD) :D