Why do you publish stops if you don't use them? (January 25, 2003)

  We use them, we just don't apply them in a vacuum. We debated and debated putting in stops in the reports because each person's investment goals are different. For example, on a stock play in a stock that is performing solidly over a period of time but then suffers some selling pressure we might be inclined to let it ride down to a test of support as in the case of a nice breakout and run up the short term moving averages; after 4 bounces off the 18 day MVA it will want to test lower toward the 50 day MVA. That action is normal. If we have options on the position, however, given the time element it would be a bad move to let it test down to that level; you would lose the gain and then maybe not make it back up in time. Thus we include stops in the report to remind everyone where near term important levels are and to continuously evaluate their positions.

We rarely use pre-set stops in our investing because even with all of the 'improvements' in the trading systems stops are still subject to abuse (market makers running the price of a stock down to take you out and then letting it pop right up). We prefer to take a broader perspective of how a stock is trading relative to the market; thus it can undercut a pre-chosen stop point intraday or for a day or two and then rebound, particularly if volume was low and it is an otherwise strong stock that is simply sagging a bit in overall market selling.

I do not want to leave the wrong impression. When I started out investing I did not use any stop at all, mental or otherwise, and that was a disaster because I had no idea why I was in a play. Today after long years of doing this we know where the trend is, what the breakout is, where a breakdown point is (and breakdown volume), and we will always, always keep those in mind. This is particularly true of the alert service where we are using a constant view of the market moves combined with the longer term trends to make our decisions; that is different from the newsletters where we have to provide a stop point that takes into account all of those factors but is still static and cannot be adjusted intraday. In any event, if a stock's action suggests anything more than a temporary setback or relatively 'normal' reversal, 9 times out of 10 you are safe just going ahead and exiting; you can always get back in.

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