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

Tuesday, Aug 25 2015 by

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.

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Barratt Developments PLC is a holding company. The Company is principally engaged in acquiring and developing land, planning, designing and constructing residential property developments and selling the homes, which it builds throughout Britain. The Company operates in two segments: Housebuilding and Commercial developments. Its housebuilding segment operates through approximately six regions and approximately 30 operating divisions delivering over 17,319 homes. Its Commercial developments are delivered by Wilson Bowden developments. It purchases land in targeted locations and designs homes for its customers using standard house designs. Its brands include Barratt Homes, David Wilson Homes and Barratt London. Its Barratt Homes brand focuses on making homes. Its Barratt London brand portfolio offers apartments and penthouses in Westminster to riverside communities in Fulham. Its David Wilson Homes brand offers home design and specification, and focuses on developing family homes. more »

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Record plc (Record) is a United Kingdom-based company, which is engaged in the provision of currency management services. The Company's suite of products is divided in two categories: Currency Hedging and Currency for Return products. It also offers solutions to individual client requirements. Its Currency Hedging mandates are primarily risk reducing in nature. Its suite of Hedging products includes Passive Hedging and Dynamic Hedging. Its Currency for Return mandates are return seeking in nature. The range includes five Currency for Return strategies being Active Forward Rate Bias (FRB), FRB Index, Emerging Market, Momentum and Value, and these strategies can be offered in either a segregated or pooled fund structure. The Company's clients are institutions, including pension funds, charities, foundations, endowments, and family offices, as well as other fund managers and corporate clients. It operates in the United Kingdom, North America and Continental Europe, including Switzerland. more »

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8 Posts on this Thread show/hide all

stock_Hunter 25th Aug '15 2 of 8

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

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GrindertraderUK 25th Aug '15 3 of 8

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

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GrindertraderUK 25th Aug '15 4 of 8

Now fixed and online. My sincere apologies for the delays

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stock_Hunter 26th Aug '15 5 of 8


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herbie47 26th Aug '15 6 of 8

In reply to post #105289

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?

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GrindertraderUK 26th Aug '15 7 of 8

In reply to post #105351

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.


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herbie47 26th Aug '15 8 of 8

In reply to post #105361

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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