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Stop losses - my theory?

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Regular Contributor
My experience over the past 6 months have been that sitting out a drop in price when close to the bottom of a market (like ours hopefully is) would have served me much better than the moneys lost on being closed out with stop losses. Examples - IMP back to 17000 where it was in Aug/Sept; ANGLO recovering to 17000 within two months, SOL back to 29000 from 23/24000 levels etc etc. I'm now riding out all quality long positions despite short term drops. Simon will probably comment : "Bye then"?
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28 REPLIES 28
Frequent Contributor
Agree. The big mega computer systems whatch our every move and they hit on us whenever they can - the stop loss hunters. I guess it depends on the trading style how much use of stoploss is made.
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Super Contributor
The more sure I am of my position, the less I feel I need a stop loss. Having said that, you weren't sure where it would turn, where the bottom was, how long it would take to recover. The guys who are waiting for 25k to come back on the ALSI are pretty cranky right now.
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Super Contributor
Can they see how much stop losses are at certain prices?
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Not applicable
those are some pretty big stoplosses you are talking about! I suppose it is all relevant to your trading timeframe. With that length of time you are talking about, you need to factor in some additional costs - i.e. holding a derivative that long and, most important of all, taxes and opportunity costs. Since you are only going to trade once or twice in a year with that strategy, you are bordering on investor mindsets. And and investor has to be very careful about cycling in and out of stocks because of taxation
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Super Contributor
Surely in all fairness ,Simon was speaking about deritives as with warrants,the time decay factor ,does not allow one just to hold?....i agree on shares and unit trusts i use the alert feature or just keep it written down in a book.
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Regular Contributor
Ya you probably right. Hindsight an exact sience. Will be interesting to see to where this afternoon's selloff will take us? Gold still looks like the safest bet to me in these turbulent times.
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Super Contributor
The important point is to not have to go through the Emotional stress when in a lossing position. The other thing is oppertunity cost.
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Not applicable
I recently had a terrible experience with a 'tight' stop loss. I entered a long position with a fixed stop loss at -14%. To my luck - whilst the position was up 28%, some devil sold out at the same level as my stop loss (illiquidity I believe)... My stop loss triggered, I went out at a loss and 5 mins later the stock went up 46% (My exit point). Note: the underlying was on an uptrend for the Entire trading session! Beat me.
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Not applicable
my strategy is to use stoplosses to protect against disaster - at least 10% below what I actually consider my stoploss. Then I get out manually when my actual stop kicks in. This way I keep my slippage costs to a minimum
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Super Contributor
Eish, which stock was that?
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Super Contributor
I'm still irritated with gold. Last year I lost 20k in a day because I figured gold would protect me and it decided to tank instead. I got out fast and it's gone up since, but now I don't trust it. Now I short when I'm worried.
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Super Contributor
I once (and I don't use stop losses often) had a stop loss fall past my price entirely missing my asking price all together. The trigger activated but the share price fell too fast.
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Super Contributor
Ja, I guess it depend on your style of trading and your access to your trading platform during the day's..
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Not applicable
SBK early this week... but I recouped my losses and then some today... on the same share
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Super Contributor
Totally agree .Stop losses will always work against you in a Bear market,esp. when there is such volatility. Stop losses in such a scenario are easy game for shorting traders. I have stopped using them completely.This is a subject often discussed,and in the present format,they cause more damage than they are worth.A while back Simon was asked to research a better system,that would eliminate small, sharp and dramatic price falls,triggering stop losses unecessarily. Many times the price will bounce back again.Stop losses should maybe only trigger on volumes traded,or the percentage drop contrasted against the past 7 day price movement.Something needs to change in the existing ,over simplistic mechanism. Simon could you and your team look into this vexing issue ?????
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Frequent Contributor
the primary function of a stop loss is to protect your capital, to avoid a mother of a loss, for with out capital there can be no trades for a trader.
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Valued Contributor
a couple of comments .. one always needs an exit strategy .. even if a buy and holder (just check out the GM share price) .. when volatility increases as we've seen now and normal stop loss levels don't work, decrease trade size and increase stop loss, then risk remains the same .. on low liquid shares (if one absolutely has to trade them), rather put a price alert .. but only if you have the discipline to exit if the trigger is legit ..
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Valued Contributor
an bottom line remains the same .. no stop loss (exit strategy) = game over (eventually) ..
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Frequent Contributor
Simom... what about buying a share of a good value at a good price for the purpose of getting dividends and a long-term investment? I mean, the kind of buy and hold forever share.
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