Would you lose 10-30% of your money

Discussion in 'Trading' started by stock_trad3r, May 16, 2008.

  1. on a position if you were certain that you would make money on it later? I know that a lot of traders here are SUPER aggresive about cutting losses. Some people don't let a single loss amount to more than .5% of the enitre account.

    But without taking big paper losses, doesnt that limit your upside because you're constantly getting stopped out? Or your're selling too soon instead of rising the trend for fear of losign money?

    Why not establish a longer term postion and ride it out? If you think the dow should be at 12500, wait for that target. Let the puts expire. Why sell so soon and so readily?

    It seems so many traders have a morbid fear of losing money.
  2. Lucrum


  3. Try it and let us know how it works out.
  4. I've lost up 30% on postions in paper, held them, and still beating the market.

    The stock market rewards people who are willing to accept short term loss for long term reward.

    If you're bearish about the US economy and the stock market and think the dow should be uch lower, why not open a long temr bearish postion and stick with it? There are so many people who trade in and out of the market, despite holding very strong convictions.
  5. Daal


    if your talking about the dow or sp500 ok, you are right, not cutting losses will work in the long-run. but using that same logic and betting on bidu,pot or other stocks selling at absurd valuations withtout any stop losses is madness and you know it
  6. every strategy has pros and cons. this strategy makes you vulnerable to being like the bagholders who bought crox at 70
  7. In my backtesting I found that removing stocks that are down a lot (20, 30 %) and replacing them with stocks that have better technicals (above SMAs, % from 52w high) helps improve risk adjusted returns over the long term.

    You might make more money in absolute terms riding out a downturn that later becomes a big winner but on risk adjusted terms this approach is often inferior (IMO).
  8. losers average losers
  9. Yea CROX is a perfect example of buy & hold gone terribly wrong.

    However, I have a criteria that can avoid crox like dissasters with regards to stock picking.

    For one, I usually only recommend stocks with market caps of 10 billion or more. Most momo, growth stocks that suddenly implode (NFLX, CROX, SIGM, TASR, BIDZ, PNRA, DRYS) have smaller market caps.

    Don't sift though the small cap garbage trying to find the next AAPL, POT, MOS, CSCO, EBAY or MSFT. You will fail. Just buy AAPL instead of trying to find the next AAPL.

    Second, the business must be a dominant leader in its repsective field.

    Third, no margin on long term positions unless it is forex or futures. The problems with margin with stocks are three fold: interest, forced liquidation, and accelerated losses. The more leveraged you are the more averse you become to losses so you sell too soon or the broker forces you to sell the falling position. In the later case, the result is devestating because you can't recoup the loss because the money is gone for good.

    Of all my criteria, this is the most crucial even though it has nothing to do with stock picking.

    Forth, the business must be fundamentally strong (but this is pretty vague).

    I told my mom to buy RIMM days before it peaked last year at 137. Soon after she began losing money, but I insisted she hold because RIMM would go up due it its strong fundamentals and there is no point in trying to time the swings. Although RIMM fell from 137 to a low of 80 it is now trading at 141, and is beating the market by almost 15 percentage points.
  10. lindq


    LOL. With over 6,000 posts on this site you are seriously asking what the problem is with holding losses hoping or expecting them to come back?

    Have you learned nothing in the past year?

    Aside from the fact that it is just a stupid strategy in every respect, consider the lost opportunities of the capital that you have tied up in a losing position...or positions...however many they may be.

    The entire point of trading is to maximize the use of your capital. If you want to "buy and hope", which is precisely what you're suggesting, then a more appropriate site for you would be www.motleyfool.com

    Even well known, successful long-term investors subscribe to the policy of putting hard stops in place and sticking to them.
    #10     May 16, 2008