Is there a way to enter stop orders that will ensure they will reliably execute when necessary to limit my losses, so that I may actually get up to go to the bathroom or eat lunch with minimal worry? (August 22, 2002)
No, you just have to hold it and not eat until the bull market becomes well-established or the downtrend resumes with force. Think of it as great mind over matter exercises and a weight loss program.
Stop losses and stop limits (sell only at this price) provide some but not nearly total safety. First, they are subject to manipulation. The very first stock I ever bought (I had no knowledge, just enthusiasm) actually went up about 20%. Flush with success my broker and I decided to put in a stop loss order to protect gains. Well, it was a Nasdaq stock, and when the stop order was put in, the stock intraday stopped its move higher, turned down just enough to take out my position, and then miraculously turned up and rallied more. Lesson number one was learned the hard way as a corollary to rule number one (as taught in our seminars, i.e., never let a gain slip away): stop orders are subject to manipulation and will be used against you if possible.
There are other stop loss lessons. They fail you when you need them most, i.e., when there is a big drop in price that moves below your order without a trade. A stop loss is converted to a market order in that situation and is filled after the next trade is made at the market. Ouch. Congratulations. You were so diligent in your investing that you just got the worst trade of the day as the stock rebounds in a dead cat bounce. A stop limit helps as you won't sell out in such a situation because the order is not converted to a market order; the stock can continue to tank, however, and you will still be in the position.
In highly liquid stocks or options stop orders work better. No one or two market makers can influence the trade to hurt you nearly as easily as in smaller trade. By highly liquid we mean a million shares or more a day average. You can get away with it at lower averages, but the lower you go the more problematical it becomes. That makes investing in a choppy market more difficult as it is easier for a market maker to run a stock up and down. When I was working as an attorney I just had a few full service brokers that I used often and each day before the open I would call and lay out what I wanted done. They would then know my thoughts and would call me when things needed attention. It cost a bit more to do that, but on shorter term positions it was very effective. They acted somewhat as my alert service; I used mental stops as alluded to in your email and conveyed those to the broker. It did not always work; stocks gap lower and you don't win. Buying protective puts is often championed, but when, and for how long? How much gain are you willing to give up? On several positions that requires a lot of extra cash. What if you are in an IRA and cannot trade options? The list is long.
What I did was find a system that worked for me knowing the stop loss system was very incomplete as a safety net. During choppy market times positions simply need more attention. It is our money out there and the goal is to preserve it and then make it grow. Whether using stops on very liquid stocks, alert service, live brokers, or a combination, there are tools out there now that we can use to help plug some holes in the stop loss blanket.
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