Revisit: A few good reads on Stop Loss

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It is in the human psychology to want to win back what we have lost. It is exactly this psychological notion which set us back and made us sit on our paper losses hoping that one fine day those losers would make a comeback. It is also this that made us 'throw good money after bad money'.

Createwealth8888 did a very good chart illustration here on why we should control losses.

We should treat our stocks like poultry instead of antique. If the hen has stopped laying eggs or fell sick (lost its value), then we should say bye-bye to it. Don't live in the illusion of hope or hold on with sentimental value.

There's no need to time the market when cutting losses - because bad hens do bad whether in good or bad times. (See fundamental analysis and High value is not the same as low price in choosing the good hens.)


I first published this post back in 2012 but the articles here are still very much relevant.

*Note the following links would bring you to external sites.

5 simple things all wealthy traders do to gain an edge (in trader's context)

I was foolish... but this trick kept me alive

Trailing stops: lock in your profits with this not-so-secret sell strategy


The important lesson to be learnt here - remember to set a stop loss price. For long term holdings, when fundamentals changed - cut losses short.
Perhaps the same principle applies to other things in life - job, marriage, business?


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Comments

  1. Singapore Man of Leisure31/01/2012, 21:38

    Yup!

    Trailing stop protects profits.

    Stop-loss stop limit losses.

    Those with deep pockets can do whatever they want!

    Those with shallow pockets who tried to "follow" the deep pockets by averaging down learnt very quickly - same same but different!

    ReplyDelete
  2. Createwealth888820/11/2015, 07:40

    I don't have stop-loss or trailing stop but I am NOT Asymmetrical in the stock market!

    Read? Patience In The Stock Market??? (3)

    ReplyDelete
    Replies
    1. Rainbow20/11/2015, 12:50

      Hi Uncle8888! That's another school of thoughts. No right or wrong. :)
      Your blog page never fails to bring me all over your blog as one page leads to another haha. And I particularly like this one: http://createwealth8888.blogspot.sg/2011/08/cut-losses-truth-pain-and-chance-2.html

      Delete
  3. la papillion20/11/2015, 14:38

    Hi rainbow,

    Haha, have you read this: http://www.reuters.com/article/2015/11/17/nyse-stoporders-idUSL3N13C5NW20151117

    ReplyDelete
    Replies
    1. Rainbow20/11/2015, 15:36

      Hi LP, wah... the lesson to learn - exercise stop loss but don't blindly use 'stop orders' to stop loss.

      Delete

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