Stop Losses.

Stimulated by Snip.

Apologise for being long winded.

I have been thinking about Stop Losses for quite a while trying to find a strategy which will protect my gains as well as protecting me from unreasonable losses.

One of the problems like Snip suggests is triggering stop losses to early or to late and thereby reducing the possible overall profits.

But the important thing I am beginning to believe is protecting ones pot from decimation.

I use Comdirect for my Sipps because of the availability of their stop losses and, hopefully, if, or when I can organise my ISAs and PEPS holdings with Barclays will move them across to Comdirect for my peace of mind. Having suffered some of the pain of the Tech

Assuming I believe in my stock picking ability (Sometimes Questionable) I am thinking trying to modify my stop loss approaches as follows: -

Larger capitalization stocks.
At the time of purchase to initialise an immediate 10% stop loss on the purchase value of the stock. When, or if, the share moves to above to above 5% of purchase value to put in place a trailing stop loss of 2-5% . (Modified by value of holding.)

Hopefully, although the stop loss will be triggered sometimes when I would prefer otherwise, it will protect the gains made and protect me from myself and stop me allowing the price to roll down further before dumping.

Again, if the up going trend returns, I can always repurchase the stock having forfeited 0.5%, the narrow spread, dealing costs and a little pride. (The latter has never fed me.) Revise my opinion of the old one. Or move on to another stock or watch and wait.

Medium capital
Here influenced by often, increased volatility, smaller market size, larger spreads, at time of purchase to initialise an immediate 15% stop loss on the purchase value of the stock. When, or if, the share moves to above to above 10% of purchase value to put in place a trailing stop loss of 10% plus the half the normal high to low spread of the past 3months

Again, I may have to swallow my pride, but if I have a real belief in the stock and can find the cause of the movement I can repurchase the stock a little later, probably at greater cost than that of the same action in a larger capitalized company

Aim and Smaller companies
Here influenced by often, much more volatility, much smaller market size, much larger spreads (sometimes the spreads strike me as ludicrous but not without reason),
At the time of purchase to initialise an immediate 20% stop loss on the purchase value of the stock. When, or if, the share moves to above to above 15% of purchase value to put in place a trailing stop loss of 10% plus the half the normal high to low spread of the current month.

Again, I may have to swallow my pride, but if I have a real belief in the stock and can find the cause of the movement I can repurchase the stock a little later, probably at greater cost than that of the same action in a larger capitalized company

Looking back over the last 5-10 years I think these strategies may have saved me a lot of cash. (However, I may have lost the same total amount but spread smaller losses over more companies.)

I do look at charts, I may even have started to be influenced by them (a little), but would appreciate the thoughts of others on this topic. Especially, the Chartists, if the can illuminate on the indicators they choose to use and the reliability of the indicators, over the period of time they have used them.

Just a recap. re PUB. It is intersesting to see that the share price went down to sit on my stop loss line so I also sat tight. Fortunately I am still in and today, so far, is forming a bullish candle

Just shows that stop losses have to go with the flow to some extent

This is one of the problems with stop losses. I must admit I have had many in place and with the movement of the market lowered others. I wish sometimes I hadn't. The problem I have is hodling to many shares. (Will gradually reduced the number to about 10) Holding 25-30% in cash and rotating the cash on hopefully more short term deals.

Also I find it easier to sell at a profit, without being to greedy, than to cut my losses on a new buy eg. BPRG. I hope I will grow up, to be a brave man and take the pain more quickly!!! Buying is to easy, its selling or letting go is the problem. The problem is between believing in your self and false belief ie. ignoring what the market is telling you.

I agree with that Fred. I must say its nice to be content with the middle portion these days

Have you looked at the spread of sectors within your holdings so that the eggs are in several baskets?

Investing Principles

Yes, but one thing I realised after many years that I knew very little about the majority of things I thought I knew a lot about. (This still applies) As far as buying shares in various sectors, in order to spread the cyclical nature of the market is concerned; I would have great difficulties, because I know, I know very little about many of these basic sectors. Again, when I buy a share I tend to look at the function and basic concept of the article being produced and whether it will have a market appeal. (A word processor, for me, was a bolt out of the blue and liberated me to be able to do things I was unable or not prepared to do before. (I could see the potential of this for businesses and other things.)

Having purchase a QL (are you old enough to remember that) my horizon was expanded. Spread sheets, graphics, Archive Data base, word processor, bloody marvellous.

Since then, I have kept an interest if technology companies and shares, electronic and support companies. Although occasionally wandering into other sectors.

Again I think the potential for growth is higher in these sectors and generally responds to the overall market (with a higher beta) and if one is lucky enough to pick a good share it will do well even if the sector as a whole drifts a little.

I think my chances of doing well is better in an area I know a little about or can see the potential of the product.

One of the problems of these sectors is that many of the companies are Pie in the Sky ie, not profit making. Gradually, I will reduce the number of holdings I have in non-profit making companies. Another change of technique, is learning to trade in bigger capital companies with small spreads, larger nms. and suitable TA., although I am sceptical of the latter I am fascinated by.

The problem is I have always been a slow learner and like Brer Rabbit I have always taken risks and love skating with danger. Hence holding BPRG, RTD etc..
But where do you put your stop losses etc..

Fred paragraph 1 is valid re market appeal. I read about FBDU (flying brands) then found out it also held www.gardeningdirect. That same morning in the mail on sunday I had cut out a big ad for gardeningdirect with a view to buying bedding plants. I logged onto the site and before I knew it I had bought 70 worth of plants. I figured out that the product was good and so I bought the shares the week after. The plants have been arriving and they are absolutely A1 (and I`m fussy) (and gardening is defensive)

Perhaps you are young enough to take risks??

The problem is I am old enough to know better and my daughters and grandchildren will tell you. But why change habit of a life time.

Update on Stop losses.

Barclays have just set up stop loss facility for me on my ISAs and PEPS.

The procedure is easy but the main problem now, is that it is only available on the FTSE 350 and the majority of my holdings are in the smaller companies.

SAD. I have put off switching my holdings to Comdirect whose charges are less and have this facility, also I would like to switch from Bar to Com in cash, but now is not the time to sell my holdings.

I have asked Barclays if it is their intention to extend the facility to the smaller companies. I await their response!!!! If any!!!

and the majority of my holdings are in the smaller companies.

I question the wisdom of putting automatically executed stops on small
and micro-cap stocks.

These can get very volatile in the morning on miniscule volume with
hopelessly wide spreads.
You'll always get chancers putting in stupid low bids to catch the
Herberts who put in a 'Sell at Best' order, or indeed...... the very
stop loss you are talking about doing.

I think that you will find that you will get needlessly stopped out.
Work out your mental stop loss, according to the price and reason that you
bought the shares. If they trade lower than this, not spike, you must then
consider that your buy reasons and entry price may be at fault.
Small and micro-caps are a law unto themselves, and TA on the low volume
that they trade on can be very misleading.

IMHO.

Melnibone.

I agree with Melnibone. I stopped using Comdirects stops when I was stopped out and the price continued up. A stop is an order to sell and as such Comdirect puts that order on their system and it can be snapped up by the market. When you look at it as an order to sell to the market at a bargain price you can see Melnibones point. Keep the stops 'mental' and use the Closing price not the intra day.
FWIW.

I understand some of the problem with stop losses on smaller companies. But I tend to use them when the share I am holding are in good profit and therefore prtecting the gains with a 2-5% drop outside previous lows. I am not ashamed to buy back in if it becomes obvious there is still good profits to be made and the fundamentals remain "sound". When I initially buy a share I tend to hope my judgement is right using fundamentals, expectations,charts to time and luck is reasonable, therefore tolerating sometimes a fall of up to 30% before dumping. But I still like stop losses and will tend to use them more, especially if I go away for a while.

I the past I have lost more from not selling than selling.