I have purchased some good stocks using advice from "Stock Advisor." I'm looking to learn and gain advice about using Trailing Stop orders in order to protect the gains made. Any help would be appreciated. Frisky
I have purchased some good stocks using advice from "Stock Advisor." I'm looking to learn and gain advice about using Trailing Stop orders in order to protect the gains made. Any help would be appreciated. FriskyAssuming you are a longer term style investor and hold because you have confidence that your holdings will continue to be worth keeping. IMO setting stops of any kind for "protection" (except maybe mental) is a losing battle that will only benefit your broker. In my experience as a more frequent trader the best option for taking profit is "Profit Latch". Set a limit order to sell at say 20% above your purchase.gdm
I do not think trailing stops make much sense. Look at the 21-day EMA and the (8,55) moving average crossover. If either of these go negative, get out. And of course, do not buy unless both are positive.Nothing works all the time without fail, but those are pretty good indicators.
I didn't fare well with trailing stops when I fancied myself to be a trader in the late 90's. Tight stops knocked me out too soon, and loose stops guaranteed that I gave away 5 to 10% of my gains. In hindsight, I would have spent my time learning how to evaluate fundamentals more intelligently so that I could buy and hold drips that were well chosen. Trailing stops would be nothing more than a rarely used tool to hedge my bets from time to time. If you haven't the time, energy or aptitude to learn the fundamentals, create a watchlist from dividend achievers and/or sdy, vig, schd or something.
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.
Thanks to each of you. Your insights are helpful and have given me food for thought. I will evaluate trailing stops as a possible tool but not to be used as I was leaning to be placed on each of my holdings. Thanks again, Frisky
I bought AAPL in '98 for a split adjusted $8/share. Having a trailing stock would have knocked me out at around $25/share or so in 2000. Same with NFLX a few years later.I think that would have been a bad move ;)Reasons for selling stock:1. The reason you purchased the stock has changed/no longer applies.2. The stock value has become too large of a percentage of your portfolio.3. You have a better use for the money (investment, new car, etc.)I don't see trailing stops fitting any of those reasons.-murray
Reasons for selling stock:I would add 4. The stock appears to be overvalued and/or appears to have achieved its potential.You are likely far less concerned about AAPL going from $700 to $400 in less than a year since you still have a purchase price of $8.The person that bought at $600 likely felt differently.Not all of us are lucky (or smart) enough to have gotten in for $8. :)
I would add 4. The stock appears to be overvalued and/or appears to have achieved its potential. I think my #1 reason applies to this. If you bought the stock as a value investment and the stock price changes that, then the reason you bought the stock changed. -murray
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |