Beta to set stops

sp0om said: "I've been thinking about devising a basic forumla to determine stops by using beta. Does anyone else use this strategy? If so, has it worked well? Or to anyone else, how do you determine your stops? Gut feel? A fixed percentage?"

alhamid said: "So rather than use a price stop you want to introduce beta? How would you determine the number?"

sp0om said: "Ok, so I'm still using stops, but I am using a measure of a stock's volitility called beta to determine it. I've been kicking around numbers for possible equations but have not come up with anything too terribly brilliant. 1. Figure out time horizon 2. Find high and low in that time horizon for any index: dow, nasdaq, and S&P. 3. Calculate the percent range of each index relative to its average value during the time horizon determined in step 1 4. Multiply the price range by the following values for different types of stops A. .9-.8 Loose stop B. .7-.6 Medium stop C. <.5 Tight stop 5. Take the resulting value and multiply by the stock's beta 6. Take the resulting value and subtract from the current stock price to determine an appropriate stop. I can't possibly be the first to use betas to find out stops, and I want to know if thare are some generally accepted formulas or something like that for setting stops."

HappyHarry said: "You might be the first, but probably not. Probably some mutual funds do something like this. However, wouldn't you still want your stops to be price-based?"