4) Being Right or Making Money – When to Sell (Stops) 1/2

Stop loss is your pre-determined exit point should your counter start to go awry. When it comes to trend trading, this can mean you can get stopped out even if the trend is still positive. Stop out does not mean the trend has changed. As long as your trend is still up…you can still look for re-entry. Stop out in this sense means an sudden abnormal selling volatilty had went down to your stop loss level.

Investing is ridiculously hard to do. You can do all the legwork to check out a company…You will buy that stock on a Monday and on Tuesday everyone in the market will dump it in droves. For no reason at all. Sure, the financial TV shows and pundits will come up with reasons…Some reason out there will fit…in retrospect, seems to prove the folly of buying too soon or too late. The truth is, a bunch of people got up Tuesday morning and decided they needed cash more than your stock, and they sold. Sorry.


 Before we go further..I have another quote… (Yes, Mr Originality strikes again)

 Being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul. Jesse Livermore

Marty Schwartz, one of the featured trader in Jack Schwager’s Market Wizrds book, have this so say,in Pit Bull: Lessons from Wall Street’s Champion Day Trader

Trading is a psychological game. Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. You have to stop trying to will things to happen in order to prove that you’re right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you’re right, but to hear the cash register ring…

That’s right. That’s why I like this phrase very much… “Being Right or Making Money”… oh…it’s a book by Ned Davis 🙂

Let’s ge back on track again.

There are 2 situations where you sell. One is where you are kicked out (Stops), despite the fact that in your trend trading analysis, the trend is still on…the other is where you walk out (End of uptrend).

When you get stopped out, you sell at a loss. When you exit voluntarily when the trend ends, you sell, either at a profit or loss. We will come to this later, as it is actually the last of this 5 steps. (Yes! There are 5 steps!…have you lost count?!)

..eh siao lian eh…you sibei long winded leh…I dun like stop…I only play to win….if the stock knn lose money…I dun sell…so no loss at all…i keep till at least it comes back up then I sell… pui!…”

Yup, meanwhile the capital locked up cannot help you make money eslewhere (opportunity loss) while you now can join the majority of people to wallow about this sickening counter which you are still holding…..and not learning….

We have to be mean here…not having stops means having a very real opportuinty of financial (trading capital) loss, so deep it may not be possibly recoverable…

Remember this earlier?

Stadion Funds 80yrs MA

Greg Morris, Stadion Funds

And this?

Loss Table

Very briefly, here are some forms of popular stops…erm…stops for trading style which I am familiar with. Try to have a logical stop, or some form of basis for your stop. Not a stop based arbitrarily on a % amount of your capital that you are comfortable to lose, or a % of the current price.

I really try to stay away from a percentage of account, because it really doesn’t tell me anything. It just says “I am willing to lose this amount of money.” Well, the market doesn’t care about how much money you are going to lose….You know what, before I hit my five-point stop, the average price where it would have been hit (my stop/loss) would have been, say, five points or four points.”Now I know this is at least the amount of room I need to give before I can execute that trade.” Mike Toma


A stock like Coca-Cola (KO) may move 5% a year. A stock like Google (GOOG) or Baidu (BIDU), it may move 5% a day. So if you use a certain percentage, that percentage may not apply to the stock that you own. For instance, if you put a tight stop on Google or Baidu, you’d be stopped out maybe intraday, and if you put a loose stop on a stock like Coca-Cola, you may never get stopped out and miss out on other opportunities. So it’s important to understand each stock and its own volatility and adjust your risk discipline to the stock you own.” Buff Dormeier


Next up are some examples of stop loss choices…


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