Online brokers - stop loss orders

[ozwrangler]

I'm chosing an online broker now and intend to start investing for the longer term shortly- in $5-10,000 parcels to start with stocks like NAB or CBA and WES or WOW to start with.

The cheapest online broker I found was belldirect http://www.belldirect.com.au/
Drawbacks are: $10/ month for live quotes (Gold service) and no stop loss orders online.

I'm wondering if I really need these features as I've got a longer-term view. I plan to review the share performance monthly.

To buy, I can set:
# the price (either Limit or Market To Limit price) you wish to pay for the shares
# the validity of your order (either Day Only, Good Till Cancelled or Specified Expiry Date).

Any feedback much appreciated- the more I read, the less I know

 

[So_Cynical]

Most of the other online brokers do conditional orders (stop/loss etc)
I know Westpac and Netwealth do.

 

[Ferret]

If your investing long term, you won't be wanting stop losses. I know that's going to stir a few people up!

There's plenty of research that says investors reduce their potential gains by churning in and out of stocks to often. If your serious about the long term, you have to be prepared to ride out the dips. If you try to take profits every time the price falls, chances are you'll just end up selling at the bottom of a dip and buying back in later at a higher price.

Review your portfolio every so often and get rid of the stocks that have lost their potential then.

Stop losses are important for traders, but won't help a long term investor.

Ferret

 

[So_Cynical]

If your investing long term, you won't be wanting stop losses. I know that's going to stir a few people up!

There's plenty of research that says investors reduce their potential gains by churning in and out of stocks to often. If your serious about the long term, you have to be prepared to ride out the dips. If you try to take profits every time the price falls, chances are you'll just end up selling at the bottom of a dip and buying back in later at a higher price.

Review your portfolio every so often and get rid of the stocks that have lost their potential then.

Stop losses are important for traders, but won't help a long term investor.

Ferret

I was going to comment on that...but thought better.

Stop loss orders when used to lock in profit do just that...lock it in!

U always run the risk of getting stopped out on a small dip and then miss out as the stock
takes off again....so timing is important...as is position size...perhaps only locking
half your profits in is better than nothing.

Long term Buy and hold type investors...are kidding them selfs if they
think they didn't lose a bundle in the last few weeks.

The money/profit was real enough if u took it out.

 

[ozwrangler]

Thanks for the replies.
I learn more when people disagree.

To clarify: I'm not looking to be a short-term trader. At least not initially.
I'd not sleep well at night and spend too much time on the internet. I'm stressing just thinking about it.

I don't believe I'd panic and sell stocks chosen for the long term during a market downturn. I was planning on choosing a major bank and something like WES or WOW for the first trades- boring stuff.

I have rental income (no mortgage) from a residential investment property and am down to about $10,000 on the home we live in, plus employment income. No money-draining 'toys'. On paper property assets of about $320,000 (investment)+ $550,000 (home). So, world will not come to an end if I see stock prices fall in line with the market.

I can see the point in that a profit's not a profit until the money's in your hand. On the other hand, I'd read that long term investment isn't so much about timing the market?

 

[disarray]

westpac broking conditional orders expire after 3 weeks so you'll need to keep resetting your stop losses. i sent them an email asking for a permanent stop loss function so i could just set and forget my longs and got a canned feedback response which means "no".

 

[Ferret]

I was going to comment on that...but thought better.

Stop loss orders when used to lock in profit do just that...lock it in!

U always run the risk of getting stopped out on a small dip and then miss out as the stock
takes off again....so timing is important...as is position size...perhaps only locking
half your profits in is better than nothing.

Long term Buy and hold type investors...are kidding them selfs if they
think they didn't lose a bundle in the last few weeks.

The money/profit was real enough if u took it out.

Sure, long term holders have lost money over the last few months - but they'll get it back and more over the next few years. It's easy to say you would have locked in profit by selling a few weeks ago, but that's trading with hindsight.

If your stop loss takes you out of a stock, when do you jump back in? Too soon and you'll stop out again with a loss this time, too late and you've lost the gain you would have made if you'd stayed in. Getting it right is timing the market and that is very, very difficult. If you have the time to ride out the dips, its far easier and a safer bet to do just that.

And don't forget that each time you churn your stocks, you're up for capital gains tax and brokerage!

Ferret

 

[wanky]

well im a newbie and just lost 5% in my first ever trade. didnt have a stop loss which i should have at around 2% but at least i learnt a lesson in their value. i thought id play it safe and invest in a bank for my first trade..
I could have stayed longterm but im not interested in that until things settle down a bit. stop losses ~2% from now on!!

 

[yonnie]

Not timing the market is brokers and advisors stuff.

they have a vested interest: they want you to keep buying regardless of what the market is doing.

now it is difficult to predict the bottom, but a fool would buy long term right now with the inflation going out of control and the interest rates rising.

 

[Trembling Hand]

well im a newbie and just lost 5% in my first ever trade. didnt have a stop loss which i should have at around 2% but at least i learnt a lesson in their value. i thought id play it safe and invest in a bank for my first trade..
I could have stayed longterm but im not interested in that until things settle down a bit. stop losses ~2% from now on!!

Hey you may want to reduce the amount you are holding and therefore able to have a bit larger stop. 2% in this market is nothing if you are holding overnight. You need to adjust your stops, quantity, and targets in volatile markets.

 

[Gullible]

To clarify: I'm not looking to be a short-term trader. At least not initially. I'd not sleep well at night and spend too much time on the internet. I'm stressing just thinking about it.

I don't believe I'd panic and sell stocks chosen for the long term during a market downturn. I was planning on choosing a major bank and something like WES or WOW for the first trades- boring stuff.

I have rental income (no mortgage) from a residential investment property and am down to about $10,000 on the home we live in, plus employment income. No money-draining 'toys'. On paper property assets of about $320,000 (investment)+ $550,000 (home). So, world will not come to an end if I see stock prices fall in line with the market.

I have a CommSec account - you can certainly set all the parameters for buying and selling using this (and costs nothing to set up, so you can then check it out fully). Linking it to a Commonwealth Direct Investment Account (CDIA) minimises brokerage and pays about 5% interest.

In your financial position, you should be looking towards your own Self Managed Superannuation Fund (SMSF) and having your CommSec and CDIA accounts in the name of your SMSF - as such, your investment income is only taxed at 15% flat, and cannot be accessed by creditors (if you otherwise go broke or are sued for some reason). Of course, until you get over $100k in your SMSF, you will be paying excessive accounting and annual auditing fees relative to the small balance. But once you are aged over 60 ... Eureka ! (Give yourself a tax-free income from the SMSF, and 100% salary sacrifice all other earned income into the fund).

Good luck.

 

[So_Cynical]

Sure, long term holders have lost money over the last few months - but they'll get it back and more over the next few years. It's easy to say you would have locked in profit by selling a few weeks ago, but that's trading with hindsight.

If your stop loss takes you out of a stock, when do you jump back in? Too soon and you'll stop out again with a loss this time, too late and you've lost the gain you would have made if you'd stayed in. Getting it right is timing the market and that is very, very difficult. If you have the time to ride out the dips, its far easier and a safer bet to do just that.

And don't forget that each time you churn your stocks, you're up for capital gains tax and brokerage!

Ferret

I know its Hindsight...but take WOW for example..over the last 12 months.

Buy below the red line and SELL above the blue and u increase your holding
(#No of shares) substantially...with out adding any extra money....buy and sell around the dots.

Blue dots all time highs, Red dots more than 8 % under last high...notice how
in the example im not holding in the purple area...so miss the big sell as any long term
holder would of missed it anyway....and now im back in...LOL

YES I KNOW ITS HINDSIGHT TRADING...but it is possible to do better than just blind buy
and hold...with out the extremes of the day/short time traders.

Oh and when your not in, your WOW money is in a net account getting 7.05% and your not lumped
with a big tax bill at the end of your long term holding cos your paying your CGT along the way.

 

[Ferret]

Nice work with WOW. I'm glad you made some money on it.

Trading a range like that is a good strategy. Its no different from what I said earlier - review your portfolio every so often and get rid of the stocks when they have lost their potential. You're using the upper and lower lines as the criteria for whether WOW has potential.

This is a bit different from using stop losses though. A stop loss would have kicked you out of your latest WOW purchase with a loss.

 

[So_Cynical]

Nice work with WOW. I'm glad you made some money on it.

Trading a range like that is a good strategy. Its no different from what I said earlier - review your portfolio every so often and get rid of the stocks when they have lost their potential. You're using the upper and lower lines as the criteria for whether WOW has potential.

This is a bit different from using stop losses though. A stop loss would have kicked you out of your latest WOW purchase with a loss.

errr..stop loss at the top only...didn't make that clear, buy and hold at the bottom...and i didn't
do this, just an example of a way to trade, in and out while still having long term aspirations
and without watching a screen 24/7.