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I recently read O'Neill. He advises limiting losses to 7-8% as a general rule. Are you at 12% to account for volativity in the current climate? Would you reduce this figure in a bull market?

Bill O'Neill is one of my favorite authors and obviously one whose ideas need to be listened to. I started out using 8% S/L orders, but I found myself getting stopped out much to often, only to see the stock I bought start climbing again (sometimes even in intraday trading). That's when I developed the system of using the stock's beta to determine the stop loss limits. I use 8% for stocks with beta less than 1, 10% for stocks with beta's between 1.00 and 1.4, and 12% for beta's above 1.4. Most of the stocks I follow are high technology, with high beta's and a great deal of volatility and the 8% number just didn't work for me. I'm not saying my system is perfect, it just works for me. I'm sure someone else could come up with different %'s for different beta's, and do as well or better than my system.

I encourage everyone to experiment with different S/L limits, different buy signals, different Moving Averages, etc. By no means is the system I developed something that should be followed everyone (even everyone on this board). Experiment with different things and see what works. You can even use the Yahoo charts and historic price tables to backtest your own system. That's what I did with my system.

The key point I want to make is that I think using TA for entry and exit points is much better than a blind LTBH strategy. Even if you just pick the stocks you want think are great LTBH candidates, and buy them when they break through the 50 day MA (or EMA), use an 8% initial stop loss order, and only sell them when they decline back below the 50 day MA (or EMA), then you will be ahead of the game. This will put you in a stock when it is rising, and out when it is falling. Pretty simple stuff , huh?? I advocate the KISS (Keep It Simple Stupid) approach.

NukeJohn
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