? Regarding cutting losses

[blgstocks]

I was reading through New Market Wizards last night and came across an idea about how to cut losses by Victor Sperandeo.

When asked how Sperandeo deals with a losing trade he says he already knows how much he is willing to lose before he even enters the trade and when it reaches that point he is out no matter what. So losses really aren't that big a deal to him because he already factors how much he can afford to lose and when he will be out.

What I wrote down was I should predetermine where I should exit before I even make this trade.

I would like to know what you guys think about this principle and if you use the same principle in yoru trading then what is your personal cutoff point - a % or a certain amount of money and does it vary at all based on what kind of risk or equity you are dealing with?

I would really love to hear your thoughts on this guys as a little light bulb went off in my head last night when I was reading this and I am sure some of the more veteran traders/investors have thought much mroe on this subject.

 

[peddler1]

This is somewhat like the other thread on Selling to early http://www.madjacksports.com/forum/showthread.php?t=264336
I have been active with stocks for over 20 years. Myself I agree you should always go into a stock with the mind set of what is the maximum you are willing to loose. The stock market is no different't than any other type of a gamble. I have both won and lost by setting a percentage stop loss but you have to have some sort of guide line you go by. I would recommend to anyone to take into consideration the following to set up a exit point on your stocks.
A) What are your investment goals.
B) Cost of transaction (Brokerage fees - Stock Price)
C) Type of stock
D) Strength of company
E) How active you are on tracking and following the market.

I am different than most but it depends on the stock. I will put in a stop loss at 20% when I purchase a stock (Other than penny stocks).
If it goes to -20% it is gone no questions asked.
I start looking very hard at any stock that starts to drop and gets into the -10% range. If it appears that it is going on a free fall I will sell and try to buy back in at a lower price. I have seen a stock drop 12% one week and be up 20% within 2-3days. That is why I use the -20% rule. Depending on the stock at times the 10% rule is just not enough room. If I am going to be away from my computer and not be able to keep my eye on the market for a few days I will make sure that I have a stop loss on each stock at the perceived value that I have set.
I also will use the stop loss system for taking profits. As the price is going up I raise my stop loss price. Again I have both won and lost but any profit is a profit. I believe if you set a stop loss to a 10% loss than you should use some what of the same approach to making sure you are able to take a profit.
The biggest and best piece of advice I can give is do your research.
Good Luck!!

 

[blgstocks]

thanks for your insight peddler, I was wondering one thing though, How many times do you see a stock drop 10% and just keep on falling as opposed to drop 10% and rally more than the drop?
In my limited experience(couple years) I find that if a stock drops 10% it has a high tendency to keep dropping. I would like to hear your take.

If anyone else has any input other than what peddler has mentioned I would greatly appreciate it

 

[peddler1]

I have not done a long term research across the board on the 10% stock drop. I would say you are probably correct more stocks keep going down when they are dropping like that. That is where I said though that you have to look at each stock individually. I am going to show you a example that did have 10% drops and bounced back quickly. ( This stock was recommended to look at by New Redneck in th general form)

1) = Geron
Date Open High Low Close Volume Adj Close*
11-Dec-06 9.80 10.00 9.35 9.45 1,893,900 9.45
8-Dec-06 9.33 9.40 9.06 9.35 1,123,000 9.35
7-Dec-06 9.09 9.48 9.01 9.31 1,864,300 9.31
6-Dec-06 8.90 9.09 8.70 8.87 925,900 8.87
5-Dec-06 9.00 9.04 8.70 8.80 1,714,500 8.80
4-Dec-06 7.84 9.03 7.82 9.00 3,451,300 9.00
1-Dec-06 7.94 7.99 7.75 7.82 506,000 7.82
30-Nov-06 8.11 8.19 7.87 7.93 765,000 7.93
29-Nov-06 7.87 8.14 7.87 8.11 447,000 8.11
28-Nov-06 7.97 8.10 7.82 7.87 751,500 7.87
27-Nov-06 8.40 8.50 7.95 8.06 896,000 8.06
24-Nov-06 8.43 8.49 8.36 8.45 183,200 8.45
22-Nov-06 8.70 8.70 8.45 8.50 661,500 8.50
21-Nov-06 8.69 8.98 8.63 8.72 770,900 8.72
20-Nov-06 8.77 8.86 8.63 8.72 534,100 8.72
17-Nov-06 8.65 8.77 8.55 8.75 615,200 8.75
16-Nov-06 8.95 8.97 8.66 8.69 687,400 8.69
15-Nov-06 8.97 8.98 8.82 8.94 955,200 8.94
14-Nov-06 8.82 8.90 8.65 8.90 680,200 8.90

With this stock if you bought on Nov 14th at $ 8.90 at 10% your bottom price would be to sell at $ 8.01. You would have sold this one on Nov 28th. As you can see the stock bounced back past your original purchase price on Dec 4th. Researching this stock you could see where it had done this before. ( I bought this stock at $ 7.50 in October. I took and sold 1/2 of my shares Nov 16th at $ 8.66. I bought more shares at $ 7.99 on the 12th and sold 1/2 of my shares again on Dec 7th for $ 9.26. If the stock gets back at $ 8.00 or under I will probably buy more shares again. It just depends on what the news is at the time.)

 

[peddler1]

This is a stock that i started a thread on a couple of months ago. UWINK

Date Open High Low Close Volume Adj Close*
11-Dec-06 2.58 2.58 2.35 2.40 257,800 2.40
8-Dec-06 2.71 2.72 2.54 2.58 149,700 2.58
7-Dec-06 2.49 2.70 2.40 2.66 320,100 2.66
6-Dec-06 2.23 2.55 2.22 2.48 347,500 2.48
5-Dec-06 2.25 2.28 2.20 2.23 114,600 2.23
4-Dec-06 2.00 2.32 1.99 2.20 327,600 2.20
1-Dec-06 1.95 2.00 1.90 2.00 36,700 2.00
30-Nov-06 1.92 2.01 1.92 1.95 68,400 1.95
29-Nov-06 1.98 1.98 1.90 1.92 79,900 1.92
28-Nov-06 1.92 2.00 1.92 1.98 143,100 1.98
27-Nov-06 1.90 1.98 1.88 1.92 203,100 1.92
24-Nov-06 1.98 1.98 1.95 1.96 73,400 1.96
22-Nov-06 2.02 2.02 1.96 1.98 94,900 1.98
21-Nov-06 2.02 2.05 1.91 1.97 181,400 1.97
20-Nov-06 2.17 2.27 2.05 2.05 325,000 2.05
17-Nov-06 1.99 2.08 1.87 2.08 179,700 2.08
16-Nov-06 2.11 2.11 1.86 1.97 442,000 1.97
15-Nov-06 2.39 2.40 2.10 2.11 573,000 2.11
14-Nov-06 2.13 2.50 2.10 2.30 1,327,900 2.30
13-Nov-06 1.73 2.15 1.70 2.08 678,700 2.08
10-Nov-06 1.47 1.64 1.47 1.64 134,100 1.64
9-Nov-06 1.50 1.58 1.40 1.45 199,500 1.45
8-Nov-06 1.50 1.60 1.41 1.50 178,200 1.50
7-Nov-06 1.30 1.54 1.28 1.45 192,200 1.45
6-Nov-06 1.28 1.31 1.28 1.30 42,500 1.30
3-Nov-06 1.30 1.30 1.25 1.28 59,500 1.28
2-Nov-06 1.28 1.30 1.22 1.30 17,300 1.30
1-Nov-06 1.30 1.31 1.20 1.28 25,000 1.28
31-Oct-06 1.32 1.38 1.20 1.27 27,700 1.27
30-Oct-06 1.28 1.30 1.27 1.30 29,200 1.30
27-Oct-06 1.30 1.35 1.24 1.30 83,900 1.30
26-Oct-06 1.30 1.38 1.30 1.33 28,500 1.33
25-Oct-06 1.30 1.31 1.25 1.26 86,000 1.26
24-Oct-06 1.30 1.45 1.25 1.30 207,300 1.30
23-Oct-06 1.21 1.33 1.21 1.25 127,600 1.25
20-Oct-06 1.34 1.35 1.10 1.20 164,400 1.20
19-Oct-06 1.48 1.48 1.26 1.33 110,200 1.33
18-Oct-06 1.48 1.55 1.45 1.49 74,600 1.49
17-Oct-06 1.67 1.67 1.47 1.52 102,400 1.52
16-Oct-06 1.70 1.70 1.58 1.62 74,700 1.62
13-Oct-06 1.65 1.70 1.57 1.63 191,000 1.63
12-Oct-06 1.54 1.67 1.54 1.62 120,500 1.62
11-Oct-06 1.49 1.66 1.48 1.53 264,900 1.53
10-Oct-06 1.53 1.55 1.44 1.52 133,800 1.52
9-Oct-06 1.53 1.55 1.42 1.53 70,100 1.53
6-Oct-06 1.48 1.54 1.40 1.47 355,600 1.47
5-Oct-06 1.54 1.63 1.43 1.49 262,800 1.49
4-Oct-06 1.55 1.64 1.40 1.50 287,000 1.50
3-Oct-06 1.64 1.68 1.46 1.50 292,300 1.50
2-Oct-06 1.48 1.69 1.45 1.60 568,400 1.60
29-Sep-06 1.51 1.55 1.37 1.42 156,200 1.42
28-Sep-06 1.53 1.68 1.41 1.51 380,900 1.51
27-Sep-06 1.85 1.85 1.50 1.51 515,200 1.51
26-Sep-06 1.45 1.80 1.40 1.74 1,022,000 1.74
25-Sep-06 1.12 1.44 1.12 1.42 372,900 1.42
22-Sep-06 1.24 1.25 0.95 1.17 391,200 1.17
21-Sep-06 1.38 1.40 1.25 1.25 232,600 1.25
20-Sep-06 1.57 1.57 1.28 1.38 432,300 1.38
19-Sep-06 1.13 1.54 1.10 1.47 1,000,900 1.47
18-Sep-06 0.99 1.18 0.93 1.12 353,200 1.12
15-Sep-06 0.97 1.08 0.92 0.99 367,500 0.99
14-Sep-06 0.95 1.04 0.82 0.96 461,800 0.96
13-Sep-06 0.73 0.90 0.72 0.86 200,900 0.86
12-Sep-06 0.68 0.78 0.66 0.72 270,400 0.72
11-Sep-06 0.58 0.70 0.55 0.65 133,600 0.65
8-Sep-06 0.59 0.59 0.55

I had bought in the first time at $ 1.18 on the 19th of Sept. The -10% would have been sold on Sept 22. I bought more shares on Oct 24th at $1.45. I did finally sell 5000 shares on Nov 15th at $ 2.30. I got all of my original investment back and cleared 20% plus I have still owned 2000 shares. Since then I have bought more shares. I sold some this morning. If it gets under $2.00 a share I will probably buy again.

These are just a couple that if I would have used the 10% rule with I would have either lost or not made the profits I did. Again I think a person has to look at each stock on its own merit.

I have also lost on investments like these. The two examples that I did give help absorb the loss on others. Such as Primedia PRM I bought this one for $2.08 in April took that 20% loss real quick and it hasn't came back.