Q&A: Stop-Losses

I’m fairly new to trading, what do you typically put a stop lost at and do you use trailing stops.
Thanks

I don’t use stops at all. Truthfully, I think they’re a diversion. I understand some people like the psychological comfort of a stop-loss. IBD’s Bill O’Neil has long advocated using a 7% stop-loss point. If that’s what you’d like, then go right ahead, but I don’t think there’s a need to. You either own a stock or you don’t.
A good example of how stops can come back to haunt you is what happened to the market after 9/11. Gobs of great stocks got pummeled in the panic-selling when there was no reason to sell. I would hate to have been stopped out then.
Also, different stocks have different volatilities. It may be perfectly natural for a stock like Google (GOOG) to swing 10% a day, but a stock like Brown & Brown (BRO) is very stable. Also, volatility is itself volatile, so these hard “7%” rules can box you in.
Too many investors get emotionally involved in the day-to-day volatility of their stocks. The great thing about investing is that it rewards not paying attention! What’s not to like?
– Eddy
If you have any stock questions, feel free to e-mail me at eddy@crossingwallstreet.com. I’m happy to give you my opinion on any stock or investing in general; however per SEC rules, I’m not allowed to give personal portfolio advice.

Posted by on November 4th, 2005 at 2:15 pm


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