Getting your stops knocked out

AlfredSokol said: "I'm planning on being more religious with stop-losses, but I wonder how often I'll be stopped out by market maker tactics. Anyone have an opinion?"

LanceJ said: "[QUOTE=AlfredSokol]I'm planning on being more religious with stop-losses, but I wonder how often I'll be stopped out by market maker tactics. Anyone have an opinion?[/QUOTE] Yeah, don't do it. Keep a "mental stop-loss". Institutions have access to stop-loss orders and will "play the stops" quite often, effectively taking "players out of the game". I always set a "mental stop loss" and carry it with me in my shirt pocket... then when it hits my mental stop loss, I place an order at market to sell. It all depends also on if you're an institutional hawk like I am. I look to buy stocks that institutions are buying via their 13f filings... in otherwords, institutions are holding lots of my picks. This can be a two-edged sword. Yeah, it's great to be in a stock the big boys are in, but watch out with setting stop-losses because they are the very same stocks institutions are watching to "play the stops". That's my opinioniated opinion... :cool:"

AlfredSokol said: "That's how I've been doing it, but I wonder if I might be better to just be out of there with a 8% loss, and then buy again lower. I guess you can view it as insurance. I just hate the idea of becoming an involuntary investor."

Heather said: "I have read in many publications that having a stop order is a good practice. The only problem is what if it's just a temporary thing (like people playing the stock one day) and suddenly it rebounds? That would sort of stink."

IntelligentInvestor said: "The problem with stop losses are that it could just be fluctuation that has nothing to do with the financial picture of the company, and stocks easily fluctuate 10% up or 10% down.. You have to follow the story of the company more than anything... Might just be a bear market.... If you set stop losses you oughta follow the stock after you've sold it to see where it heads.... It could blow up after a correction in the market or something... ya never know.."

HappyHarry said: "I set the stops at if I get knocked out, I get knocked out. But I don't ever want to get killed on any stock so I just have to limit my downside."

sp0om said: "[QUOTE=LanceJ]Yeah, don't do it. Keep a "mental stop-loss". Institutions have access to stop-loss orders and will "play the stops" quite often, effectively taking "players out of the game". I always set a "mental stop loss" and carry it with me in my shirt pocket... then when it hits my mental stop loss, I place an order at market to sell. It all depends also on if you're an institutional hawk like I am. I look to buy stocks that institutions are buying via their 13f filings... in otherwords, institutions are holding lots of my picks. This can be a two-edged sword. Yeah, it's great to be in a stock the big boys are in, but watch out with setting stop-losses because they are the very same stocks institutions are watching to "play the stops". That's my opinioniated opinion... :cool:[/QUOTE]IMHO, mental stop losses are a bad idea. Unless you have an exceptional level of emotional control and the disipline to follow through when necessary, they would IMHO do more harm than good."

LanceJ said: "[QUOTE=sp0om]IMHO, mental stop losses are a bad idea. Unless you have an exceptional level of emotional control and the disipline to follow through when necessary, they would IMHO do more harm than good.[/QUOTE] If you don't have an exceptional level of emotional control and the discipline to follow through when necessary, then you shouldn't be investing in the stock market. Perhaps lottery tickets would be a more prosperous venture for someone lacking emotional control and discipline. Mental stop losses are always a good idea, especially if you are in stocks with high institutional ownership."

LanceJ said: "[QUOTE=AlfredSokol]That's how I've been doing it, but I wonder if I might be better to just be out of there with a 8% loss, and then buy again lower. I guess you can view it as insurance. I just hate the idea of becoming an involuntary investor.[/QUOTE] Hmmm... well... the 8% loss is a little tight, in some stocks... What makes it more challenging is at times you contract or expand your stop loss. My general rule is that when investing in stocks traded on major exchanges, non-small caps, I come in at a 10% - 15% stop loss depending on the chart, volume, volatility, etc... Let's say my original thesis was a 5% gain then sell. If I blow into my thesis and achieve that 5% gain in a day or two, on rising volume, I'll up my stop loss by 5%. If I gain another 3% over the next couple of days, on rising volume... I just might raise my stop loss another 3%.... Blah, let's keep it simple. The idea is to set a trailing stop loss. And remember, I do this in my head so it's a "mental trailing stop loss". Now what if suddenly a CONFIRMED (damn it) news story comes out and your thesis for investing in that stock in the first place is met; however, you know it's got more upside to it because a NEW piece of information comes to light... since your original thesis was met, and now there's this new reason for holding it and so you can see this may have more upside to it but you don't want to fart around here, so you tighten your stop loss to 3% effectively locking in your profits and you are just going to ride it up and sell if it turns around in any way. Or what if a terrorist attack happens in London? You know within 1 hour. The market is dropping fast. Could have another terrorist attack. You bought low into a beautiful company with a P/E of 9, and P/S of 0.75... you're up 10% since buying, and you set your trailing stop at 10% (to guarantee you'll break even)... your beautiful stock is down 3% after the attack.... so you widen your trailing stop to 20% (doubling it) because you know that there is "uncertainty" in the air, and uncertainty means volatility, and so you want to give your stock more breathing room because you know the volatility of the terrorist attacks will reverberate through the financial markets for the next few days, and you don't want to get stopped out by this volatility, which has nothing to do with the performance of your company. Or another scenario: the same above, but now you've confirmed that Washington D.C. has been hit and the White House is in flames, you know what happened to the markets on 9/11 so you either sell, or tighten up your stop loss to some rediculously low amount like 3%. This secondary idea being this: discipline is a must; however, let's not confuse discipline with rigidity and failure to adapt to changing market conditions. In rare occasions, because new information becomes available, you'll want to have enough flexibility in your approach to adjust that trailing stop loss. So yes, I see what you are getting when you wrote: "I just hate the idea of becoming an involuntary investor"... I say that if you create an ADJUSTABLE mental trailing stop, giving yourself the voluntary choice of adjusting that trailing stop loss... you'll like the idea of investing a little more as opposed to hating just going through the automatic motions that a static stop loss order provides. There are differing schools of thought on this as well, the: Static Stop Loss versus Non-Static Stop Loss ("Trailing Stop Loss") approach. I don't know where you are in your investing life style, but I think new investors need to learn emotional control and discipline and so they should start out perfecting the Static Stop Loss method. When they begin to hate that method, it probably means they are ready to graduate to the more advanced Non-Static Stop Loss/Trailing Stop Loss method. Good luck my friend, for it is better to be lucky than good. :cool:"

sp0om said: "[QUOTE=LanceJ]Hmmm... well... the 8% loss is a little tight, in some stocks... What makes it more challenging is at times you contract or expand your stop loss. My general rule is that when investing in stocks traded on major exchanges, non-small caps, I come in at a 10% - 15% stop loss depending on the chart, volume, volatility, etc... Let's say my original thesis was a 5% gain then sell. If I blow into my thesis and achieve that 5% gain in a day or two, on rising volume, I'll up my stop loss by 5%. If I gain another 3% over the next couple of days, on rising volume... I just might raise my stop loss another 3%.... Blah, let's keep it simple. The idea is to set a trailing stop loss. And remember, I do this in my head so it's a "mental trailing stop loss". Now what if suddenly a CONFIRMED (damn it) news story comes out and your thesis for investing in that stock in the first place is met; however, you know it's got more upside to it because a NEW piece of information comes to light... since your original thesis was met, and now there's this new reason for holding it and so you can see this may have more upside to it but you don't want to fart around here, so you tighten your stop loss to 3% effectively locking in your profits and you are just going to ride it up and sell if it turns around in any way. Or what if a terrorist attack happens in London? You know within 1 hour. The market is dropping fast. Could have another terrorist attack. You bought low into a beautiful company with a P/E of 9, and P/S of 0.75... you're up 10% since buying, and you set your trailing stop at 10% (to guarantee you'll break even)... your beautiful stock is down 3% after the attack.... so you widen your trailing stop to 20% (doubling it) because you know that there is "uncertainty" in the air, and uncertainty means volatility, and so you want to give your stock more breathing room because you know the volatility of the terrorist attacks will reverberate through the financial markets for the next few days, and you don't want to get stopped out by this volatility, which has nothing to do with the performance of your company. Or another scenario: the same above, but now you've confirmed that Washington D.C. has been hit and the White House is in flames, you know what happened to the markets on 9/11 so you either sell, or tighten up your stop loss to some rediculously low amount like 3%. This secondary idea being this: discipline is a must; however, let's not confuse discipline with rigidity and failure to adapt to changing market conditions. In rare occasions, because new information becomes available, you'll want to have enough flexibility in your approach to adjust that trailing stop loss. So yes, I see what you are getting when you wrote: "I just hate the idea of becoming an involuntary investor"... I say that if you create an ADJUSTABLE mental trailing stop, giving yourself the voluntary choice of adjusting that trailing stop loss... you'll like the idea of investing a little more as opposed to hating just going through the automatic motions that a static stop loss order provides. There are differing schools of thought on this as well, the: Static Stop Loss versus Non-Static Stop Loss ("Trailing Stop Loss") approach. I don't know where you are in your investing life style, but I think new investors need to learn emotional control and discipline and so they should start out perfecting the Static Stop Loss method. When they begin to hate that method, it probably means they are ready to graduate to the more advanced Non-Static Stop Loss/Trailing Stop Loss method. Good luck my friend, for it is better to be lucky than good. :cool:[/QUOTE] Thanks for sharing your knowledge. I might have to reconsider my stance on mental stop losses and perhaps add them to my current system. :cool:"