Saturday, July 27, 2013

Part 2. Stop Loss – Are you ready to take the emotions out of your stock selling? Play hearts!

In between this post and the previous one, I stopped to play a couple of rounds of hearts. I am grim because I lost more rounds then I won! It was better for me to stop playing than trying to force my luck and risking my objectivity in the game play. Sometimes, you keep on playing, often without pleasure or interest in the hope that the odds of the game will favour you. Typically when that happens you have become half an automaton and you’d likely play the newly obtained hand poorly without even recognizing the favorable card distribution… how investment-like!

‘Stop-losses’ are much alike to deciding to take a break from the game rather than waiting for better odds. Tomorrow when you play again, even with the same hands you may do better because you’re rested and more focussed on the game. The stop-loss strategy is just like one of the play strategies you’d teach yourself for a playing a particular game. Before your market position turns for the worst, you'd take a breather. If you lose more than 15, 20 or 25% from the stock’s recent price peak or from your recent purchase then sell it no matter what and take a break. Go back to the drawing board!  
Heck! With current low discount brokerage commissions, in theory, right after executing the stop loss,  you could be back in the market for under 10 bucks. But is it wise to go back into the market just after a stop loss is triggered? That could be one of your other game strategies! Once a stop loss is triggered you must wait at least 3 months before repurchasing the stock. And/or you don’t get back in ,until the stock price is trading once again above its 50-day- moving average. Whatever your fancy; but stick with it!

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