When to bail out?

[stargazer]

Hi all

I have read some material from various sources in recent times and what has stood out to me is that most of the people that have sold have regrets because the price has come back up and done very well had they held on to the stock.

At the time it was out of favour and trending down and going nowhere. So when to bail?

Somethings i have picked on was that some have sold to buy lower but then the price went back up etc

I am sure you have all read or heard what i am saying so what are the things to look for that might tell you the price will continue to plummet or it may come back up.

MY STORY:
I was put on to a stock about 6 months ago and has gone down and at the moment going nowhere i believe that it is still a good company. I own 100000 shares in it and i am not selling, whats the point but it has certainly tied my money up.

I understand that different strategies for short med long etc but knowing what i know now i probably would've put a stop on it. When i wanted to i got talked out of it because the person had been stopped out and the price ran on him. Don't use a stop he said you'll regret it...famous last words..lol.

I make a good return with racehorses ( treat thiem like stocks really)..lol so i am not afraid of a punt so for long term i am not convinced that a stop loss needs to be used.

Cheers
SG

 

[tech/a]

Re: When to bail out

so for long term i am not convinced that a stop loss needs to be used.

That being the case I would say that you havent been trading long enough(Nor your friend) to have learnt this lesson.
The only time you should give a stock rope is when its in profit.
Giving it rope when its tanking is like standing there with a hole in your pocket.

There is much to trading far more than simply an entry and exit.

 

[stargazer]

Re: When to bail out

Hi Tech/a

Yes you are correct i haven't been trading the stock market for very long but am trying to learn that's why i ask alot of what may seem silly questions.

I am tending to get more confused the more i read as everyone seems to have a different slant on things but i guess its like anything you have to find what suits you.

As you are probably aware there are many that say that a stop loss is not necessary but the most do.

What do you mean give a stock rope.......

Cheers
SG

 

[MichaelD]

Re: When to bail out

As you are probably aware there are many that say that a stop loss is not necessary but the most do.

90% of stock traders fail. Want to take a guess at how many of those 90% don't use stops?

 

[stargazer]

Re: When to bail out

Hi MichaelD

I have heard of that statistic but we are talking traders and yes i would agree just from waht i have seen with some stocks that a risk management set up would be necessary as things can take turn for the worse in a matter of minutes with some stocks.

However for a longer term investor (unless they bought like Harris Scarfes) etc would be fairly safe wouldn't you think.


I guess it comes down to WHEN do you take the profit or let it ride.

Cheers
SG

 

[Julia]

Stargazer

If you have a look on the thread "Your biggest Investment Blunder....."
you will see that I asked a fairly similar question regarding exits and received some helpful and constructive advice.

Julia

 

[MichaelD]

Re: When to bail out

However for a longer term investor (unless they bought like Harris Scarfes) etc would be fairly safe wouldn't you think.

Absolutely. HIH - safe. ION - safe. OneTel - safe. TLS 2 - can't lose. Do you know the annual public company failure rate?

Having said that, diversified buy/hold will eventually perform at or a little below the market average return over the long term, including company wipe-outs. The long term market average return is of the order of 10% per annum. If that'll do you, then you may as well buy/hold invest in an index fund. Just be prepared for the ups and downs of the ride.

 

[hardmoney]

Hi all
I make a good return with racehorses ( treat thiem like stocks really)..

SG

Good, then what you need to do is to treat stocks like racehorses instead.
By this I mean when you back a horse you know exactly how much you can loose,(your bet) and how much you can win (if fixed odds).

With stocks, your stoploss is the same as your betsize.Set the stoploss to risk $x, when the stop is hit your loss is taken.However the beautifull thing with stocks is that I dont know what return I will get.If I let my profits run as much as possible I might get 2 to 1 or 8 to 1, or 50 to 1.

Imagine being at the racetrack and seeing a horse 5 lengths in front with 100m to run and the bookie offers you 10 to 1 on it.Would you back it ?
Trend following in stocks works like that.


Rgds,

HM

 

[tech/a]

HM
Nice analogy.
Any tips on the Melbourne Cup! OH and the name of the bookie i want to place my bet 10 meters from the line!! Ill have to box it though! Anything can happen in the cup 10 meters to go!

What do you mean give a stock rope.......

As a stock moves forward in its upward trend it will from time to time increase in value at a rate that it cannot adhere to for a long length of time.
Corrections back to a more sustainable growth occure all the time.
Provided those corrections dont fall into a change of trend from Bullish to bearish,as you gain open profit you can afford to relax your exit,and in doing so give a stock the chance to ebb and flow as the market adjusts from over valuation (perceived by those investing) to undervaluation (Perceived by those investing). This is how you can catch those really big moves of 200-500% over in some cases years.

Constantly running short timeframe trading limits your profitability to small grabs here and there.The equation is then more about getting it right than how long your right and the return you'll gain V the losses you can accumulate if you dont place stops.

If you think about it a stock which decreases 25% then has to grow from that 25% downturn 50% to break even.
Had you taken the loss at say 5% then a 10% return on it in a more favorable time is much more achievable and likely than the 50% gain.

Plus the opportunity cost of having your capital tied up whilst its falling cant be underestimated.
Your funds could be in another prospect growing rather than falling!!

 

[rub92me]

HM
If you think about it a stock which decreases 25% then has to grow from that 25% downturn 50% to break even.
Had you taken the loss at say 5% then a 10% return on it in a more favorable time is much more achievable and likely than the 50% gain.

I understand and agree with what you are saying, however wouldn't it be:
Required % Gain = Down % / (1-Down %). So 33.3% gain required for a 25% drop, 100% gain required for a 50% drop? Still an uphill battle of course...

 

[stargazer]

Hi all

Thanks for you inputs. HM nice analogy speaking my language and the additional benefits of letting it ride or taking a small loss.

The only difference with horse racing is the market trend is not your friend if you follow the crowd.

Cheers
SG

 

[tech/a]

Re visited this thread as I was going to start another on this very topic.

I have been watching those fundamental traders (Well most are) in the Alphabetical section trading some of those stocks that run---they're pretty quick to alert when one gets up and running--that Im impressed with.


But what I see mostly is great trades turning to mediocre trades even losses as there is this on going sences of announcements coming out infinitum that will send price forever into the cosmos.

Below is a comment on the GDN thread I replied to.

Upside lots downside ah well ,Ill take the upside thanks.cheers

20c to $1.20---600% thats significant upside.
600% from here again would be $6.

I have no problem with people buy and holding but watching a 600% profit drop to even 300% or 400% is plain stupid.

10% or in some cases 30% fine.

But what I see most people doing when trading these smalls is not realising the massive profits to be had by ACTUALLY TAKING the profit---infact they should be attempting to maximise it.

Its one thing to minimise losses with stops---which most of these guys dont believe in so there can be big holes in the bottom of the Money Pit.
But even a 50% decrease in an initial purchase price which to me is CATASTROPHIC---pales when---

People watch Outlier moves go 100-500% and are fortunate or clever enough to get on it---then to watch it fall 50-200% in ANTICIPATION of further announcements. Thats simply criminal in my veiw.

There seems to be this consistent attitude that one trade will turn $5000 into $5 million.To all of these traders,I say.

You CAN take a profit and its OK to re enter when its OBVIOUS price is going to resume its up trend--you DONT HAVE to guess what its going to do.PRICE ACTION AND VOLUME DO THAT.

Here is where a combination of trading analysis would be of greatest value--the exit!

CHECK THESE OUT and I will re visit them in a few weeks time and see how many are in the stratasphere and how many have given back half of their outlier move.

https://www.aussiestockforums.com/forums/showthread.php?p=86911#post86911