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As I said before, we need to let people off the bus, gus


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#31 OEXCHAOS

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Posted 06 March 2008 - 07:33 AM

Here let's see if we can get him to say it... :lol:

Mark, do you recommend that traders NOT have a stop??? :cheer:


I believe it is IMPERATIVE that in some particular contexts traders NOT have a stop. That is correct.

I believe that in some particular contexts traders not have a HARD stop.

I believe that in other particular contexts a stop is so important that even an arbitrary one some distance from entry is imperative. I'm pretty sure there's more than one person on this site that I've given the "Stops with futures" lecture to.

Most of the trading that folks do here probably qualifies as needing stops. If you're trading one or just a handful of etfs or futures or just a few stocks or sectors you almost assuredly ought to be using stops (though I can think of a context or two where you shouldn't, particularly certain hedged trades).

There's another factor and that's has to do with what is "trading" vs. investing. What exactly makes a holding a trade and not an investment? Should one have stops on one's investments? Hard stops?

For my value accounts, I do my research, learn the stock, look at the technicals and the broad market, and then start nibbling long. I rarely have enough of the stocks I want to hold. Why would I want a stop? I don't want to let them go, I want to buy more. I've already invested a lot in them, and unless I'm very wrong or I've been snookered, I'm going to be loath to dump that holding based solely upon adverse price action. Now, when I buy a lot of a stock or when a small position has gone up so much that it's more than 10% of my holdings, then I start watching it very closely. I may not have a hard stop, but if it starts acting poorly, I start selling part or all. I either want to take it down to a trivial percentage or take the entire profit. That of course, triggers an analysis of the rest of the portfolio. Do I have an offsetting loss that I might want to take? Do I have enough cash? Do I have too much? If I want to take a loss, is a particular losing issue acting sigificantly worse than it's peers (i.e. do I still want to hold it at all?), or should I just swap into an equally beaten up peer?

Now, one might say that I'm not "trading" but I am, in the context of investing. Stops generally just don't serve the approach well, though some soft mental stops do from time to time.

Mark

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#32 IndexTrader

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Posted 06 March 2008 - 09:13 AM

If I lost everything in a diversified portfolio with no leverage, it wouldn't be because I didn't have a stop.


This is true. Just remember that this conversation started in regards to a short gold futures position. This position is "hedged" by a long stock futures position.

But speaking of "value portfolios", it is true that if there is no leverage then the portfolio won't go to zero. But I got my career started in the bear market of 1973-1974. There were alot of stocks then that dropped 90% on the 50% move down in the Dow Industrials. Don't you think it might have been wise to have been stopped out of some of your portfolio at some point.

Some of those stocks then never really came back. Remember Polaroid? Xerox? How about Revlon? Likewise, off the 2000 top we know that there were some widely held stocks that went broke....Enron? Or a few that didn't, but did not come back either. Sun Microsystems? How about Dell? Intel? Cisco?

After my Dad's death, I'll forget the Northern Telecom that I liquidated at $4-5. He had ridden it all the way down. Now, he did have the majority of his money in bonds. And he had other stocks for diversification purposes. But certainly the portfolio would have been helped by being rid of that particular one.

Then there's stocks like GE or Pfizer. Blue chips that are a long ways down, and laying there.

So no, your portfolio won't go to zero if it is diversified and unleveraged. But it can take some important hits that didn't have to be with some type of loss cutting discipline.

But again, what we were talking about here was a short position in gold futures.

IT

#33 SemiBizz

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Posted 06 March 2008 - 12:00 PM

I see, the no-stop strategy in a diversified portfolio fully discounts any black swans... Go for it. You can only lose ALL YOUR MONEY.

Edited by SemiBizz, 06 March 2008 - 12:01 PM.

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#34 OEXCHAOS

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Posted 06 March 2008 - 01:36 PM

I see, the no-stop strategy in a diversified portfolio fully discounts any black swans...

Go for it. You can only lose ALL YOUR MONEY.


Ever see it happen? Ever? Can you even find a documented case?

In 25 years of trading and investing I've only seen properly diversified portfolios suffer relatively modest draw downs.

I don't think I've EVER heard of one losing everything. That's all of my quarter century plus all the old timers I used to work with.

I have watched folks get chopped out of the market and trading alltogether using stops, however.

And, of course, those who use stops often miss the upside and dividends that the continued exposure gets others.

But, if you're trading a sector or with leverage in etf's, stocks, or futures, you should definitely use stops of some sort.

Mark

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#35 OEXCHAOS

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Posted 06 March 2008 - 01:43 PM

Actually, let's go a step further. Can someone show me a hard stop strategy in, say, SPX spreads that isn't destined to wipe an account out? How about trading OTM SPX calls and puts? Mark

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