No. of Recommendations: 2
To expand on jdc's comment, I occasionally use a trailing stop on a position where I have acheived my desired gain, but I don't necessarily want to get out.

I may not know where the top is, or when a sell signal occurs, but when I have the growth that satisfies my goals, I plug in a trailing stop.

I did this with AAPL last year. I rode it up past $600 and I felt comfortable with my gains but rather than sell it and try to find a better investment, I simply placed a trailing stop - and proceeded to ride it up through 700 before it finally sold at $695 when my stop triggered. Good thing too as emotionally, I would not have known when to pull the trigger otherwise and would like have watched go all the way down to 600 and beyond. I was able to buy back in at $425 and again at $450.

Was AAPL a long term investment? Perhaps. I would have certainly held onto it if it went to $1000 and beyond. I also would have been satisfied if market forces turned it into a short term investment (as it turned out).

If I am buying something stable like the S&P index or an individual stock like ITW, I don't tend to use a stop. If I am buying something more volitile, I will use them in only two cases 1) at first purchase to protect me from something catastrophic, or 2) once I have achieved all my desired gain but have no specific better investment alternative. During times of potential significant volatility, I might put a trailing stop on most positions - as I did in October during the debt ceiling mess. I even put them on my S&P positions.

I used one in January on TQQQ (3x the NASDAQ) once I had 20% gain and as the market staarted turn direction. It sold the very next day. Now, I could have simply sold and saved myself the 5% loss on the trail but I was both satisfied to make 15% in 3 months on it and I wanted to stay invested incase the market continued to grow.

I have since bought back in at a new lower price but I chalk that opportunity up to luck, and not any particular skill.
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.