Posted by wallmann If we buy a stock, and we have the good fortune of seeing it move higher, we Now, if we buy XYZ at 40.25 and it had a tremendous day, let's say it ran to Now, What do we do if we buy XYZ and at the end of the day it hasn't gone anywhere? It just sat or wiggled around our price, but never went far? You could get back out, but in general terms that isn't necessarily a "bad" thing, so maybe we just put a stop in at its nearest support level. So we paid 40.25 for XYZ, but it closed the day at 40.38. But we see it has some decent support at $39, so we place out stop there. The worst case scenario is if you buy XYZ and instantly it's falling. You paid 40.25 and an hour later its $39. What to do? This is the toughest of all. If you are a daytrader, you bail out and move on. But if you bought it for a "split run" or it's falling because the overall market is tanking, it may be best to just put in that "next support stop" and pray the thing doesn't fall that far and you get stopped out with a loss. In this type of entry (where the stock falls as soon as you buy it), do NOT give it a ton of room. We'd rather take a small loss than see it fall a ton. On wildly volatile stocks, you may be shocked at how "far away" the stop is going to be. Why? If you are buying a stock that can move up or down 12 points on a "normal" day, you can't have a stop set within that normal swing area or you could get sold off with a loss over nothing more than "noise". Noise is what we call a stock's daily range. So on something like that, we may buy it for say $135 and have to set our stops at $120 or maybe even $115. That gets painful if it falls that far and you sell, but as you have seen, stocks can and DO fall from 135 to 80! So, if we say that we "bought a stock at 40" we are going to assume that you are considering these variables. If we buy it at 40, and it immediately goes right to 44 that day, we are NOT using an old support, we are going to use at "least" our entry price as a stop. http://clix.to/wallmann
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on 9/20/2003, 12:59 pm
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When you first pull the trigger on a trade, we consider that to be one of the
most important and nerve wracking times of the whole trade. You have just committed your money and now what the stock does from that point on will impact you financially. So, it goes without saying that if you buy a stock and it immediately gains a dollar, life is good! But what if you buy something and it immediately plunges? Here is what we do, and this is how we are going to assume you are doing it.
immediately place our stop right at the buy point or a touch higher. For instance, let's say we buy XYZ on a move over $40. We buy it for 40.25 and by
the end of the day its 41.50. That was a great entry. But we feel there is more to comeso we aren't selling just yet. In a case like that we would place a stop at our buy price, or maybe a .25 higher. This way if it was a "one day event" and the stock falls apart quickly, we get stopped out with a tiny gain or dead even. No damage done.
45.50, we aren't going to look a $5 "gift horse" in the mouth. We would
place our stop right up tight to it at say $44, locking in at least a $4 profit even if it retraces the next day. Or we may sell half our position at
the close, and leave half to "ride" but we would still keep the stop pretty tight. If XYZ moves up to $47 the next day, we would simply move our stop up to 45.50 or so, "trailing" the stock (in fact, this is called a "trailing" stop).
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