Sort of.
Last week I put up a post about stop orders that repeated something I have written before which is that they are not the cure-all for every single trade or investment. The post was re-run on Seeking Alpha and the following comment was left by someone named Didier;
stop loss not only work but it is the only manner you can be successfull in the stock market and you have the responsibility to not spread this kind of non sense. What does not work was to buy the stock at 60$ when a retracement was expected. A stop loss does not mean you cannot enter the stock later again when it was more appealing at 50$.
Buy yourself a classic book from Schwager or Van Tharp, stop loss is the basic of all.
Suffice to say he does not agree with my idea and he would have known the stock was going to drop before I bought it. Putting aside the fact that I should only be writing what he believes in the comment does illustrate that there is more than one way to do everything related to managing your portfolio.
In that post about Suncor there was one or two other comments about my entry point at $60 looking bad on the chart. That turned out to be correct, no doubt.
Another way to look at the trade might be to ask is 15% of down side volatility worth the potential for what is now 40% of upside volatility (the stock is above $84 today) for a stock that is a hot potato and participates in a them you believe in?
Technical analysis does not always work. A couple of people said $60 was a bad entry point but as it was just reaching that point I'm not so sure that was easily detected. There was a comment or two that said $82 was a bad entry point when I said I had no feel for $82 and yet the stock is up another $2. All technical analysis does, for people that are consistently good at it, is put the odds in your favor. Like every other form of analysis it has strengths and weaknesses.
One point I made in the past about stop orders and the idea of putting an 8% stop under every stock you own is that 8% under Google is much different than 8% under Proctor and Gamble (PG).
Applying a bit of introspection to my own weaknesses if I had been stopped out of SU at $55.20 (8% below where I bought it) I would not have likely bought back in. I would not have known where to get back in. Perhaps the folks leaving comments along these lines would have known to avoid $60 but buy $50 but would you have known? If the answer is no, then perhaps an 8% stop under every single stock you believe in is not for you either.
I will post later today or tomorrow some other ideas about when and how to sell. Just because I do not use a stop on every stock does not mean no exit strategy either.
Wikinvest Wire
16 comments:
You are going to justify an entry at $82 by stating that it has gone up another TWO WHOLE BUCKS so technical analysis can't be the be all and end all? The whole line of reasoning in this article is flawed and beyond salvage.
Removed your blog from my list and excised the cookie.
I believe I said I had no feel for $82 either way.
Ask any decent hedge fund manager if technical analysis doesn't work. You never even considered that it isn't just price but also volume and many other technical tools you need to use to make ta work effiectively.
I said TA didn't work?
I think I said it does not always work. Nothing always works. This is not that bold of a statement.
The tone of the comments here seem to be adding 1 plus 1 and getting eleven.
Nothing is infallable, um, I'm just pointing out that blind devotion to any one thing may not be ideal.
In relation short term swing trading I posted an analysis of stops at my site.
http://www.dayvejohnson.com/Trading%20example.htm
I thought maybe you may find it interesting Roger.
this is good stuff Dave, thank you
Roger,
Thanks for the informative posts and additional comments about when to bail out of a stock. It has helped me crystalize my thinking. I find it best to decide BEFORE I buy a stock, what will make me throw in the towel. Otherwise I can rationalize the reasons why I am still holding with the best of them!
There is nothing like looking over someone's shoulder to gain a better understanding of investment/trading choices.
Regards,
Lisa
Well, it isn't too hard to tell who does and doesn't have real money in this game (or won't have money real soon!)
Pay no attention to the man behind the curtain (of nasty comments.)
Fred
thanks Fred but aggressive comments goes with the territory.
Obviously, the negative posters have never realized that the specialists on the floor of the NYSE just LOVE those stop loss orders. Many, many times I have seen a stock trading at, say $30 bid $301/8 ask ( I'm old fashioned )...the stop loss goes in at $27. Sooner or later---BAM---errant trade done at---you guessed it---$27. Next tic---you are right again---30 1/4.
They will pick you off all day long. The only time stop loss orders work, is if you set them at "Investors" level....but with Roger's 200 DMA rule, you would be out then anyway.
g
"The proselytizing fanatic strengthens his own faith by converting others. The creed whose legitimacy is most easily challenged is likely to develop the strongest proselytizing impulse."
Eric Hoffer "the True Believer"
Roger,
I am on your side again here. Another wrinkle that may be added is to use a "trailing stop" offered by some software packages out there that can, in effect, make an order invisible to the specialist or market-maker as it is housed away from the trading location. This could alleviate the fear of placing a stop order and having the traders pick it off. And, as a long-time teacher of TA, I can say you are correct, it doesn't ALWAYS work, but it is nice to have it in analysis.
Have any of you people ever heard of a mental stop? Roger the least you could do is explain to your readers that you don't hang orders for market makers to see. Lets try this again with the correct information on how to trade using technicals. O
I expect you are right, Roger. I just have a hard time with people coming to an open house (with free beer!) and abusing the host.
Fred
Fred's beer comment may be the funniest comment ever left on this site.
I've lost more money (in opportunities lost) using stops than anything else I can think of. I simply don't use them anymore.
Technical analysis is useless also. The so-called technical "patterns" fail often enough, that when you back out trading costs you basically come out even. It's simply a waste of time.
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