Danger Of Using "Stop Loss"

(09-09-2014, 04:11 PM)CityFarmer Wrote: I have merged the thread into an existing thread, which discussed exactly the same topic.

Please don't start new thread, if there is existing thread.

Thanks

Regards
Moderator

the old thread no poll leh...

IIRC, poll can be added on old thread.

Cyclone, am i correct?

Hello

Good discussion so far, I have not thought of setting Stop Loss before, so this provoked me to think.

I find that I have a problem of slowness to act to new information about the companies. So for example, if Company A made an announcement, I will only realise a few days later.

Therefore, it would be useful to have a alert when there is large movement in stock price, so that I can re-evaluate the company.

However, because of the need to manually re-evaluate the company, it is not useful to have a Stop Loss order, as it could just be poor general market sentiment, in which case, it is time to buy more stocks!

I have insufficient experience to say if a stop loss would get you out of the market at a better price when bad news breaks.

Anyway, how do you guys get stock alerts?

I do not and find them annoying. just check the stocks during earnings seasons to update my database. As buffet said, only need market to open once a year can liao ;-)

via Xperia Z1 with Android 4.4.4 running tapatalk.

Yes, agree, but if one who do not want to stop loss , if he is wrong, then he got lot more to suffer later. Do you prefer to lose say 8$ out of 100$, that is 8% loss, or do you need to wait it go to 50% down?


Stop loss is a must not only for investment , but also for every aspect of our life. If a relationship is on the rock and there is no way to mend it after thorough talk and discussion, then a divorce is the only way out. I have seen it before. If they continue , they will end up even worse. Now both party are happy once again. Because the hurt is deeply enshrine in our mind, and there is no forgiveness for the other party.


Remember, the other thread, "How much is your net worth", we were discussing about car. How many times we need to repair a old car before we give it up and decide to buy a new one? There must be certain length down the road that we give it up, cause it is giving lot of trouble. So it is better to change one. (stop loss, isn't it) . Or you prefer the burden of maintaining it, effort waste, time wasted.

(06-01-2015, 03:35 PM)yewkim Wrote: Yes, agree, but if one who do not want to stop loss , if he is wrong, then he got lot more to suffer later. Do you prefer to lose say 8$ out of 100$, that is 8% loss, or do you need to wait it go to 50% down?


Stop loss is a must not only for investment , but also for every aspect of our life. If a relationship is on the rock and there is no way to mend it after thorough talk and discussion, then a divorce is the only way out. I have seen it before. If they continue , they will end up even worse. Now both party are happy once again. Because the hurt is deeply enshrine in our mind, and there is no forgiveness for the other party.


Remember, the other thread, "How much is your net worth", we were discussing about car. How many times we need to repair a old car before we give it up and decide to buy a new one? There must be certain length down the road that we give it up, cause it is giving lot of trouble. So it is better to change one. (stop loss, isn't it) . Or you prefer the burden of maintaining it, effort waste, time wasted.

Let's continue the topic of stop-loss here instead.

I always start with definition. I don't classify a sell, after a fundamental analysis, as stop-loss. I do classify an automatic setting of sell, solely by price movement, regardless of fundamentals, as stop-loss.

If the reason for the frequent repair of a car, is due to part failures, after investigation. A "change" to new car, is a right way to do. It isn't a stop-loss to me.

If the reason for the frequent repair of a car, is due to improper driving habits. A "change" to new car solely by the frequency of workshop visits, will not help. A change might be un-necessary, and the new car will visit a workshop soon.

If the analysis was right and the Company is attractive, why should one set a stop loss unless you clearly bought it when it was over-valued in the first place? In fact, you should be buying significantly more when it dips down, rather than cutting loss. A paper loss is usually inevitable due to Mr. Market's mood swings; but to let him dictate your views on the true value of a Company would be unforgivable, as it means you are selling to him in panic when in reality, you should be buying with eagerness!

‘whiplash’.

As a trader, you research a market, decide there is a big move ahead, and pull the trigger. You are then in the lap of the gods.
Sometimes, the market follows your script; sometimes it doesn’t, and goes nowhere. It meanders around, driving you crazy in the process, and then your trade gets stopped out.
Maybe you get a little shaken by this, and decide you’re on the wrong side of the trade. So you take the opposite trade. But the market fails to follow through, and stops you out yet again.
Welcome to the frustrating world of the ‘whiplash’. This term describes perfectly the picture – a whip, when cracked, moves one way, then the other, but is always painful in the end! If you recognise the scenario above, don’t worry – we’ve all been there. But over the years, I have developed a strategy to minimise the chance of this happening.
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Now which one of us (even for VB investors), have not some kind of experience close to it?

In my opinion, stop loss is a method for trading, not fundamental investing.

If there's material facts that would throw my fundamental analysis completely wrong, I would not hesitate to sell after verifying my thoughts. In this case, the percentage of price increase or fall is irrelevant to the risk involved in keeping the stock.

Sent from my D5503 using Tapatalk

I think there's some confusion between "stop loss" and "cut loss". The former is a trading discipline, the latter is to respect the market that maybe one is wrong. Both are matter of art and highly dependent on one's experience and discipline. Both are also highly dependent on your asset allocation skill. One's psyche and strategy is different when it is 1% vs 10% of portfolio

"Cut loss" is usually fundamental driven or sometimes respecting the unknown. Is it wise to average down in 1997 or accumulate in late 1998? Or to buy fundamentally strong stock like Satyam or Parmalet when they crashed?

As always we have to consider the downside risk and allocate accordingly to our risk appetite and conviction. If sure win then just sell everything and "hoot"