The 4 "Golden Rules" That Most Traders Will NEVER Learn

[Fredledingue]

I can only see stoploss orders if

1/ Daytrading or intra-day trading (swing trade is even to long term for that IMO) but in thiscase the limit can be less: 1% or 0.5%.
You also target gains of 1 or 2% per trade only.

2/ You are in a lot of positions (like 100 or more), beside options etc and you need automated safeguards because you can't materialy, follow each stock and react to each move. Your style is based more on statistical prediction and broad sector changes. It protects you if you model fails.
But that won't be a very efficient way of managing your money.

3/ You follow a statistical prediction patern based purely on chart analysis (there will be a rebound here except if it break the $36 52weeks support)
Not sure if it's possible to earn money with that, thought.

4/You definetly decided to cash in and part with your stocks at this point.

5/ You like playing strip pocker with the market
Like "if the news are good it will go up huge". Then it's a viable option to cut loss on a gamble.

Because the market is too volatile. 2% or even 3% moves on one day is commonplace. They happens on no news and no reason whatsoever.
IMO, selling without reason (what a stop loss order does) is unreasonable.

a/ You can expect a stock to grow 20% in a few weeks, but never expect it to do so without temporary dips of less than 5% down in between.
That almost never happen.

b/ You may buy a stock at a fairly low price, yet the risk that it loses 5% or more before it rebounds as expected, is roughly 50%.
So a stop loss will exit with a loss eventhought it was a good bet half of the time.

[Airelon]

Honestly mate, in 12 years, I have yet to meet one, just one professional trader who does not use stop / loss orders on swing trading. Anything more than day trading - which moves too fast to really set a stop / loss order (which is also why so many amateur traders do not do well day-trading. It takes a ton of emotional discipline to be 'your own' stop / loss order)

When I speak of risking 2% - that's of your account size. Not of the daily move of a stock; which is a percentile change in it's own price. It all comes down to money management principles, technical analysis, and understanding volatility vs. price movement and time. One of the first tenants of money management is understanding, controlling, and limiting your risk.

[Fredledingue]

Originally Posted by Airelon

Honestly mate, in 12 years, I have yet to meet one, just one professional trader who does not use stop / loss orders on swing trading.

Pro traders, I imagine fall in case "2/ You are in a lot of positions (like 100 or more), beside options etc and you need automated safeguards..."

But if you have 10 or 20 and throw a glance at the markt everyday, do you need a stop loss?
Maybe on risky stocks or risk-of-bad-news stocks, I don't know. But it should always be a case-by-case decision, not a principle.

Personaly, when I'm in the boat, I ride the waves.
I often buy stock I KNOW could go lower in the net days.
When I buy stocks I always plan to buy more if it falls very low, instead of a stop loss because I believe the price I bought at will be seen again when the stock recover.
Sure, i could sell on a stop loss and buy lower, the risk is that the stop loss is set at the bottom from which it rebounds because I tend to set stop loss at resistance levels.
The few times I used them, I set them exactely where they rebounded, triggered a penny shy of the intraday bottom, with no chance of buying lower and selling at the worse level of the week range. But maybe I didn't use them properly.

Maybe I should n't hesitate to buy back when a stop loss was triggered by mistake. I will lose money buying higher than at what I sold, but not as high as when I bought the first time, so the loss are limited. Only commissions may be high if this experience is repeated often.

A stop loss make sens when you can buy back lower, IMO.
For that one should have a well designed strategy and swift reactions.

[oldstocks]

My rules:
(1) If you start hearing a lot of news, get out of the stock (good or bad).
(2) Buy low and sell high (read into this one as you will)
(3) Diversify
(4) Set aside gambling money if you are going to speculate
(5) Never invest in the company that you work. This should be obvious when you work with people who can't even run a copier.

[stockrich]

The Darvis box strategy works real well because it is based on the personality of the stock and not a rigid stop loss ! some stocks need more room they range more and Nicholas darvis figured this out a long time ago. you can see it on my website on the darvis box button wwww.the-stock-teacher.com

[aquaswim47]

Originally Posted by Airelon

Was just talking to a few new traders some time ago, regarding money management principles. It's fascinating to watch new traders absolutely and positively reject anything having to do with money management principles. They nearly scream shreiking into the night, as if a cross, garlic and holy water was just thrown up in front of them. This was about 3 weeks ago. What do I know? I've only been trading for 12 years right? They've been in the markets a whole whopping 2 years.

One guys calls were on 100% this year - so his reasoning became "Well, I'll just hold onto my stocks (50% of his account equity), because I know they'll turn around". And of course, the market turned against him, and he just recently found out the markets rule: "The markets can remain irrational longer than you can remain solvent"

It just shows that there's risk in stubborness. I got hit severely in JCP. Without that, I would have had a loss that was 72.9% less than I currently have. I liked it because it had better liquidity ratios than its competitors and had a better debt to equity ratio versus all of its competitors other than KSS. KSS had a better debt/equity ratio but not as solid, in my opinion, of a liquidity. In fact, the main problem with JCP in my eyes was its excess liquidity and very slow growth.