Using Stops: Are You Stopping Gains?
Using Stops: Are You Stopping Gains?
(via valueplays.blogspot.com)
I got a great email from a subscriber a few weeks ago. He asked me about the use of "stop-loss orders". To paraphrase:
"Do you use stops to protect yourself from a drop in stock prices and protect profits? If you do, where do you set them 10%, 20%?"
Thinking about stops
I've also been thinking about stops. I am concerned that a few of my richly valued shares could crumble if Mr. Market gets depressed.
Not thinking about stops
I've never had a use for them. Momentum investors buy shares that are rising in price in the expectation they will continue to rise. I can understand protecting yourself against a reversal of the trend if you are a momentum investor. But I'm not. The real problem is where do you set them. If you set them at 20% I'm not sure it's worth the risk you'll be whiplashed as a share falls temporarily to that level but then rises back above it. If you set it 50%, well the damage is done isn't it? I don't own any shares that will go bust tomorrow.
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