How wide a stoploss?

Want to venture a guess how many thousands of CMGI traders refused to use stops on their positions because of the fear that they'd just catch a bad day, get their stop tagged, and then it would rebound and leave them in the dust?

The guys with the "mental" stop (or mostly "no stop") approach on CMGI rode that dog from $150/share to $2/share (they kept thinking "hey, it's going to reverse and head back to the moon any moment - better not exit now it can't go any lower").

There are a lot of reasons to use stops depending on what and how you're trading. If you're scalping or watching your positions constantly AND are confident in your ability to quickly pull the trigger when you need to - you probably don't need stops. But that's a fairly small subset of the overall trading/investing population and everyone else out there should probably be using stops.

Again, it's silly to say you should NEVER use stops because different traders have different trading needs and trading styles and situations.

But like anything else in trading - it's about how you implement (in this case, where you set the stops). If you set them poorly, you get poor results - just like if you constantly pick poor entries. And just like with entries, if you constantly pick back ones - it's not the "entry" that's the problem, it's your implementation. Same goes for stops - stops aren't the "cause" of any trader's problems (indeed often they might keep him from getting into serious problems), but his poor choices of stop placement can definitely cause a trader recurring problems.

Remember, it's not the hammer's fault if the carpenter misses the nail.

 

I think it is worse than most traders can imagine. Not only were there no stops in place ( if they knew what stops are) I know of people who viewed price drops from the hundreds to the teens as buying opportunities and purchased all the way down. Dollar cost averaging is their mantra.

I live in Corning, NY - GLW peaked at $112 in 2000. At $70 it was viewed locally as bargain basement pricing. At $35 it was called a two for one sale. At $16 ' it can't go any lower' get a second mortgage if you have no cash left to invest.

Now I trade it monthly buying and then sell and shorting it between the 6.50 and 7.50 price. Starting to look as though that 7.50 will be hard to reach again this month and I got caught on the buy mode.

So many locals have their entire retirement in this one stock. They tell me it will be at $18 next year. Others say $30 next year. I really think these price projections are based on the individuals average cost per share and if believing those prices is what helps them sleep at night, I'm not going to debate them.

Personally I see myself making thousands off the movement of this stock while my co-workers are sitting around waiting for their investment to go up to break even.

Multiply my experience times millions of baby boomers and I can see why the gov't isn't likely to eliminate the social security system and let people invest for their own retirement. When they become penniless seasoned citizens from bad investing and/or corrupt trading practices (Merrill) the gov't will be taking care of them anyways.

 

Traders, for the most part, simply get out of dropping issues, or don't get involved in the first place. We teach our traders a couple of "Prime Directives"

1. Never buy a down stock, nor sell an up stock. (never means 90% of the time).
2. Never add to a losing position. That would eliminate a lot of the problems described above.

There is no way to stop lossed from happening, there are differeing opinions on how to limit them. We choose to monitor our stocks, evidently some choose not to.. so be it!!

Good Trading all!!

Don

 

After disecting what was presented here and backtesting some new rules for my stops I have enjoyed a much better week this week as a result. I played very volitile stocks all week and had much better results. While I will always requestion my tactics should my profit/loss suffer down the road I now have a good base strategy in place.
I widened my "elbow room" on more volitile stocks as darkhorse suggested which in order to keep my money management in line forced me to be choosier about my setups to begin with.

I looked harder at my time horizon and stopped trying to swing trade using intraday support and resistance.

For some reason I'm realizing when I just plain called it wrong and get out without blinking which occured a couple times.


I post this to say thanks and also to update any other newbies who read this thread and were trying to draw conclusions themselves.