The Average Investor's Blog

A software developer view on the markets

Using Stops

Posted by The Average Investor on Nov 16, 2010

Probably a controversial area, but I do use them. They seem to help not only to limit losses, but also to protect (realize) profits. To realize profits, I have been using lately “trailing stops”. With the today’s pull, but EEM (Emerging Markets) and VNQ (US REIT) hit their trailing stops, closing the trades for about 10% and about 6% gain, respectively. However, I will still keep the trades as open – the idea is to concentrate only on the MA.

To be honest, I am a bit disappointed with the VNQ trade. This trade has been up as much as 17% and it seems stupid to end up pocketing only 6%. True, hitting the stop loss might be a false alarm, just a pullback before another leg up, but only future will tell. I also used a wider trailing stop on the VNQ – 8%, instead of my usual 5% (which I was using on EEM). Similarly, the EEM trade went up as much as 19%.

I’d like to have both a stop loss and a stop gain, however, my brokerage doesn’t allow me to set these two at the same time. They allow only a single stop trade at any time. At present I have been solving this issue using a trailing stop, but I think it’s time to reconsider my approach. At least for these long term trades I will be taking profit at around 15% from now on.

Advertisements

One Response to “Using Stops”

  1. […] The Weekly Update Nov 23, 2010 The Average Investor Leave a comment Go to comments Some of our positions barely survived this volatile week. On Wednesday VNQ reached lows that if held would have triggered a sell at the end of the week (a previous post shows how to pre-compute the exit points). In fact, if stop losses would have been used, two of the positions (EEM and VNQ) would have been closed. […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: