Forum Archive Index - November 2003

[Phaedrus <Phaedrus@techemail.com>]

 I think perhaps you are talking about a trailing stop (for profit protection) 
rather than a stoploss.
 Stoplosses are hit when a stock falls below the price you paid for it, 
reaching the predetermined maximum acceptable loss level that you had set. 
 Trailing stops are designed to lock in profits when a stock that is above the 
price that you had paid, begins to fall. They are designed to limit the amount 
of profit that you give back to the market under these circumstances. There are 
many ways of implementing trailing stops. One of the simplest is to sell when 
the stock falls x% from its high. These can give a lot of gains back to the 
market though. For example, if you were to avoid being flicked out of AIA, such 
a trailing stop would need to be set at around 25%. In other words, the price 
would have to drop to just over $5 before it was triggered. That is a lot of 
profit to give back to the market. In many ways, such a trailing stop is an 
exit plan for those with no exit plan. In my view, it is better to concentrate 
on the trend, exiting when it ends. For example, the current confirmed longterm 
trendline is at around $5.60 - much closer to the price action.
 Stop losses are tricky things. Set them too tight and they are triggered 
often, giving a poor hit rate. Set them too loose and you lose a lot of money 
before "admitting" your mistake, and acting. There is no doubt that, overall, 
you are better off for using them, but everyone can point to individual trades 
in which any stoploss would have best been ignored. This is where discipline 
comes in. (Allan, I wouldn't call them "free" insurance. There is a very real 
premium to be paid!) The bottom line is this :- If you set and keep to a 
consistent stoploss policy, you will have NO big losses. None!
 McDunk, I use MetaStock for my charts. It comes with an excellent manual and 
comprehensive online help. Many people only use its most basic functionality, 
but anyone is capable of driving it, given enough time and application. Perhaps 
I could claim to be self-taught, though most of my knowledge has come from 
books and I have a formal TA qualification.
 I have stated many times that I advocate the use of FA AND TA. I use FA to 
select stocks and make all buy and sell decisions solely on TA.
 How do I deal with "unforeseen unpredictable situations"??? Since I cannot see 
into the future, to me, most all situations are unforseen and unpredictable. My 
systems are totally reactive - they react to price movement regardless of its 
ostensible "causes".
 Whether I "take the loss or ride It out" depends solely on the indicators that 
I am using to monitor that specific trade. These are chosen according to the 
timeframe that I am trading. Naturally there is no need to restrict yourself to 
any one timeframe. You could trade AIA in 2 timeframes for example, with half 
of your AIA investment following medium-term trends and the other half 
following the longer term trend, with a view to selling this tranche when price 
action breaks below the longterm trendline.

                   Phaedrus.
 

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