Friday, May 10, 2013

Stop loss wisdom from Thomas Bulowski

Thomas Bulowski from the thepatternsite.com posted this on his Facebook - good stuff. 

Stops can work wonders for quick trades that go wrong. I don't use them for buy and hold and position trades. But I DO use them for swing trades and mental stops for day trades. With this trade, I don't want to sell if the general market is taking my stock down and the industry and stock fundamentals haven't changed. In other words if all else is equal, a declining market trend will take a stock down with it. Why sell? You should sell if that market current turns into a bear market. Then hold onto long-term positions is dangerous to your wealth. Otherwise, it becomes a question of how low will the stock go and can you tolerate such a loss? Often you'll find that when you sell, about 2 weeks later, the stock bottoms and climbs. If the industry or stock internals (fundamentals) change, then holding can be a disaster. You have to evaluate each situation, do your research, and make the call. No easy answers.

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