LON:BDEV | Stop Losses (video) - Why, When, How And When Not

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25th Aug '15 by GrindertraderUK

8 comments 10235 reads

Stop Losses. A hotly debated subject in which I appear to be in a very unique group of investors. That group is the vocal minority who support them.

I have written several posts here and elsewhere on stop losses but always felt my message hasn't been that clear. I have recorded this 23 minute video in which I hope explains my opinion better on Stop Losses.

In Particular:

Why stop losses are important to my trading AND investing psychology
When to use a stop loss
How to place a stop loss
When stop losses are no longer required

Paul Scott is also mentioned and my reasons for having a different view point.
Barratt Development (LON:BDEV) and Record (LON:REC) charts are used as examples.

I hope you enjoy the video.

https://youtu.be/_8CbTMq_b9Y

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About the Author

GrindertraderUK

Premium Member

I work in the Oil and Gas IndustryI do not invest money in the oil and gas industry

8 comments

stock_Hunter

25th Aug '15

Not able to view..file is private ?? Any viewing restriction ??

GrindertraderUK

25th Aug '15

sorry will be on line soon. I had to re-record it.

GrindertraderUK

25th Aug '15

Now fixed and online. My sincere apologies for the delays

stock_Hunter

26th Aug '15

Thanks

Rusty2

26th Aug '15

I did listen to the video last night which interesting although I have stopped using stop losses now. I did think the stop loss on Barratt Developments (LON:BDEV) was a bit tight at 10% as it does seem to go down that much. Also not sure how accurate those charts are, seem to be based on the closing prices not the high or lows on the day?

GrindertraderUK

26th Aug '15

HI Herbie

On the video I hoped to explain clearly that using 'as a rule of thumb' of 10% 'as a starting point' to place a stop loss 'when first buying into the stock'

If as explained buying in a 600p then you could clearly see that the stop loss is away from normal daily volatility. I used the line chart for simplicity however as shown below my point stands even with daily candle sticks. In fact BDEV even survived 'Black Money'

The reason I use a stop loss when I first enter into a trade is to minimise my losses should my timing be wrong, or I missed on red flags when doing research that may indicate the investment was bad. No matter how much research that I do on a stock when I first invest, I gain most of my knowledge and experience from that stock once I have been invested after a while.

I fully understand that even BDEV may go down 10%. I never move the stop loss higher so as soon as the price is clear of the stop loss, maybe plus 30% profit and above then I use the plus 10% dip as a buying opportunity if that happens.

At this stage which is probably after a few months I get to know the stock better. I have gained much more knowledge and experience of the fundamentals of the stock, price action and its future. I can be more confident in making informed choices about whether to top up on the dip..or manually take profit. I am no longer reliant on the stop loss at all.

This is how i handle my own psychology and discipline within my investment plan. It has worked for me well and often. I also very rarely get stopped out anyway as I use checklists and my research is good enough to give me some confidence in that i pick good stocks. However I do not become over confident. I recognise my limits when understanding financial statement and all the jargon that goes with it. To this end I need an unemotional exit plan to get me out of potential spiralling losses, when I first enter into a stock. This is why the stop loss works for me.

Thanks

Rusty2

26th Aug '15

Thanks, yes you explained it very clearly. My comment was because I see there were a few times the sp did fall about 10%, as in June 650 to 594, the big problem I have found with stop losses is the sp may dip down in thin early trade or the market makers have just shaken the tree and I have been stopped out at the lowest price only to see the sp rebound the same day. So although the closing price may not be much down on the day the share price may well have fallen and then recovered. Many of my buys seem to fall soon after I have bought, I prefer now to consider what to do rather than have a auto sell on them. I think stop losses are good for shares that plummet ie down 20%+ but not so good for ones that only fall 10%. Also good if you can't watch them. I have often topped up when they have fallen but then I don't usually invest a large amount straight away, I like to have flexibility. A lot is down to timing.

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Stop Losses (video) - Why, When, How and When Not

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About the Author

GrindertraderUK

8 comments

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