Comments on: The Virtues of Stop Losses http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 19:05:02 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: Its_Science http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/comment-page-1/#comment-138669 Its_Science Tue, 13 Jan 2009 05:41:58 +0000 http://www.ritholtz.com/blog/?p=15793#comment-138669 Thanks Porsche87. It occurred to me after I submitted my comment that ETFs and index mutual funds wouldn't want stop losses, so I agree with you there that it's perhaps unlikely that enough investors would use them to trigger the scenario I described so broadly. Thanks Porsche87. It occurred to me after I submitted my comment that ETFs and index mutual funds wouldn’t want stop losses, so I agree with you there that it’s perhaps unlikely that enough investors would use them to trigger the scenario I described so broadly.

]]> By: ben22 http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/comment-page-1/#comment-138651 ben22 Tue, 13 Jan 2009 01:37:23 +0000 http://www.ritholtz.com/blog/?p=15793#comment-138651 I've found it pretty tough to "pick" % stops the last few months, esp when the VIX was so high, even TA marks were shot right through on the downside. I think the key lately was just to make sure your stops were tight and to trade lightly. I’ve found it pretty tough to “pick” % stops the last few months, esp when the VIX was so high, even TA marks were shot right through on the downside. I think the key lately was just to make sure your stops were tight and to trade lightly.

]]> By: gregh http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/comment-page-1/#comment-138626 gregh Mon, 12 Jan 2009 22:40:02 +0000 http://www.ritholtz.com/blog/?p=15793#comment-138626 Can I consider break-even atop the trading fees a win? ;) Can I consider break-even atop the trading fees a win? ;)

]]> By: Porsche87 http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/comment-page-1/#comment-138608 Porsche87 Mon, 12 Jan 2009 21:04:12 +0000 http://www.ritholtz.com/blog/?p=15793#comment-138608 @Its_Science A massive sellof could be the case with some low cap stocks. However, when you consider the number of funds or ETF's that are forced to track an index or some other sort of weighting, you get in the situation where only short term traders and not investors would even have stops. However, I have been curious as to how much of an effect ETF transactions have had on overall stock prices. One of the things Kevin Lane doesn't mention is moving your stops as price increases (not a trailing stop, per se, but raising it just the same). Having a 10% stop, with a 20%-30% target, you could hit a 19% increase and then fall through to your stop, essentially losing 29%. Moving your stop to at least cover your initial investment or lock in some profit (but avoiding getting stopped out due to normal volatility) helps keep your returns positive. @Its_Science

A massive sellof could be the case with some low cap stocks. However, when you consider the number of funds or ETF’s that are forced to track an index or some other sort of weighting, you get in the situation where only short term traders and not investors would even have stops. However, I have been curious as to how much of an effect ETF transactions have had on overall stock prices.

One of the things Kevin Lane doesn’t mention is moving your stops as price increases (not a trailing stop, per se, but raising it just the same). Having a 10% stop, with a 20%-30% target, you could hit a 19% increase and then fall through to your stop, essentially losing 29%. Moving your stop to at least cover your initial investment or lock in some profit (but avoiding getting stopped out due to normal volatility) helps keep your returns positive.

]]> By: DL http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/comment-page-1/#comment-138575 DL Mon, 12 Jan 2009 18:54:51 +0000 http://www.ritholtz.com/blog/?p=15793#comment-138575 Ah, but the question then becomes, when to get back in? Ah, but the question then becomes, when to get back in?

]]> By: Its_Science http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/comment-page-1/#comment-138541 Its_Science Mon, 12 Jan 2009 17:34:19 +0000 http://www.ritholtz.com/blog/?p=15793#comment-138541 Here's a thought experiment: Let's say that every long equity investor used stop losses to protect against moderate downswings. Would this eventually lead to another "Black Monday" when a relatively small drop in prices is exacerbated by a wave of triggered stop losses? I'm sure this isn't a danger today, but if enough traders used it, I could see it giving a false sense of security in the same way portfolio insurance did. Here’s a thought experiment: Let’s say that every long equity investor used stop losses to protect against moderate downswings. Would this eventually lead to another “Black Monday” when a relatively small drop in prices is exacerbated by a wave of triggered stop losses? I’m sure this isn’t a danger today, but if enough traders used it, I could see it giving a false sense of security in the same way portfolio insurance did.

]]> By: interwebrit http://www.ritholtz.com/blog/2009/01/the-virtues-of-stop-losses/comment-page-1/#comment-138517 interwebrit Mon, 12 Jan 2009 16:07:15 +0000 http://www.ritholtz.com/blog/?p=15793#comment-138517 It helps to play poker....tossing seemingly "winning" hands only feels good in hindsight. It helps to play poker….tossing seemingly “winning” hands only feels good in hindsight.

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