Danger Of Using "Stop Loss"

"The biggest problem with stop losses is that you have given up control of your sell order to the computer. During volatile markets, that can cost you money."
Unquote:
Not to mention about "whiplash" trade.
If we can live with these 2 disadvantages, we should be able to use "AUTO STOP LOSS".
Anyway which brokerage in Singapore allows you to use "AUTO STOP LOSS" in stock trade?
Is there any?
My "AUTO STOP LOSS" is my manual input "Limit Sell Price".

(22-10-2013, 11:48 AM)Clement Wrote: I think of it like buying insurance, part of a process to ensure smooth operations and long term viability. The fake outs do cause increased transaction costs but I am willing to pay for the chance to think more clearly when things don't go my way. I have had bad experiences where i was long and wrong without a stop and would be willing to pay a little to avoid that experience again.

(22-10-2013, 01:42 PM)Temperament Wrote: "The biggest problem with stop losses is that you have given up control of your sell order to the computer. During volatile markets, that can cost you money."
Unquote:
Not to mention about "whiplash" trade.
If we can live with these 2 disadvantages, we should be able to use "AUTO STOP LOSS".
Anyway which brokerage in Singapore allows you to use "AUTO STOP LOSS" in stock trade?
Is there any?
My "AUTO STOP LOSS" is my manual input "Limit Sell Price".

(22-10-2013, 11:48 AM)Clement Wrote: I think of it like buying insurance, part of a process to ensure smooth operations and long term viability. The fake outs do cause increased transaction costs but I am willing to pay for the chance to think more clearly when things don't go my way. I have had bad experiences where i was long and wrong without a stop and would be willing to pay a little to avoid that experience again.

I think that is a not a very common situation. For the stop to actually lose us money, the following things have to happen.

1) The stock price has to move beyond the usual trading band to trigger your stop loss.
2) On that unusually volatile day, the price has to hit your stop loss and then proceed to rally/bounce.

In other cases, the stop loss enables you to exit at one price and re-enter at a lower price.

In most cases, especially in Singapore with contrra traders aplenty, a stock which trades below it's old ranges will continue to drift downwards due to forced selling, due date selling etc.

I am not sure which brokerage offers stop orders as part of their basic packages.

Investopedia explains Stop-Loss Order

In other words, setting a stop-loss order for 10% below the price an investor paid for the stock would limit the investor's loss to 10%. It is a good idea to use a stop-loss order before an investor leaves for holidays or enters a situation in which the investor will be unable to watch his or her stocks for an extended period. The downside of a stop order is that since the order becomes a market order when the stop price is hit, instead of a limit order, the investor never knows the price at which the order will be executed.

So i think the worst case is when your Stop Loss Order was executed due to a "Black Swan" event like SEPT 11 2001. Rare it might be. But never say never.

(22-10-2013, 02:17 PM)Temperament Wrote: Investopedia explains Stop-Loss Order

In other words, setting a stop-loss order for 10% below the price an investor paid for the stock would limit the investor's loss to 10%. It is a good idea to use a stop-loss order before an investor leaves for holidays or enters a situation in which the investor will be unable to watch his or her stocks for an extended period. The downside of a stop order is that since the order becomes a market order when the stop price is hit, instead of a limit order, the investor never knows the price at which the order will be executed.

So i think the worst case is when your Stop Loss Order was executed due to a "Black Swan" event like SEPT 11 2001. Rare it might be. But never say never.

I don't see how it was disadvantageous to be forced out on Sept 17th 2001 when the market reopened. The market did not recover quickly and an investor could have sold first and repurchased cheaper. It is very rare to see a stock open maybe 5-10% lower than the previous close and proceed to rally immediately. A better example will be the "Flash Crash" on 6/5/2010.

(22-10-2013, 11:48 AM)Clement Wrote: I think of it like buying insurance, part of a process to ensure smooth operations and long term viability. The fake outs do cause increased transaction costs but I am willing to pay for the chance to think more clearly when things don't go my way. I have had bad experiences where i was long and wrong without a stop and would be willing to pay a little to avoid that experience again.

Isn't options is the way to "insure" a position?

Anyone know how to set up an optiom for put or call?

(22-10-2013, 02:41 PM)NTL Wrote:

(22-10-2013, 11:48 AM)Clement Wrote: I think of it like buying insurance, part of a process to ensure smooth operations and long term viability. The fake outs do cause increased transaction costs but I am willing to pay for the chance to think more clearly when things don't go my way. I have had bad experiences where i was long and wrong without a stop and would be willing to pay a little to avoid that experience again.

Isn't options is the way to "insure" a position?

Anyone know how to set up an optiom for put or call?

Well, you can open an account with a online options trading broker. Using options to hedge positions might not be the reliable for the stocks favored in here. Not all stocks have issued put warrants and index options might not be useful to most people here.

(22-10-2013, 02:37 PM)Clement Wrote:

(22-10-2013, 02:17 PM)Temperament Wrote: Investopedia explains Stop-Loss Order

In other words, setting a stop-loss order for 10% below the price an investor paid for the stock would limit the investor's loss to 10%. It is a good idea to use a stop-loss order before an investor leaves for holidays or enters a situation in which the investor will be unable to watch his or her stocks for an extended period. The downside of a stop order is that since the order becomes a market order when the stop price is hit, instead of a limit order, the investor never knows the price at which the order will be executed.

So i think the worst case is when your Stop Loss Order was executed due to a "Black Swan" event like SEPT 11 2001. Rare it might be. But never say never.

I don't see how it was disadvantageous to be forced out on Sept 17th 2001 when the market reopened. The market did not recover quickly and an investor could have sold first and repurchased cheaper. It is very rare to see a stock open maybe 5-10% lower than the previous close and proceed to rally immediately. A better example will be the "Flash Crash" on 6/5/2010.

Both were bad. But if you were a professional short-term trader to a day trader, then i suppose they prefer both extremes of the market. The more violatile the market the better for them to operate. Especially market crashes.
Not to lose any money is the best. - WB.

Let's examine the possibilities. (This discussion only applies to stocks which are reasonably liquid.)

1) You made a mistake and bought garbage. Stop losses prevent you from losing further by forcing a sale. For example those who bought Blumont etc who have stops.

2) You bought a good stock and poor market sentiment causes it to drop, triggering margin calls and contra forced selling by others. Stop losses enable you to exit first, take stock and re-enter at a lower price, giving you the same exposure and some surplus cash. There are numerous such incidents recently especially during the "fed tapering fears" period.

3) You bought a good stock and a flash crash occurs. You get stopped out at a low price and the market rallies without you. This is the only case where it is disadvantageous to have a stop loss. The Minzhong incident is the only recent such incident that comes to mind, where stopped out investors were unable to re-enter and benefit from the Indofood offer due to trading halt.

How often does a Minzhong situation come about?

(22-10-2013, 04:00 PM)Clement Wrote: Let's examine the possibilities. (This discussion only applies to stocks which are reasonably liquid.)

1) You made a mistake and bought garbage. Stop losses prevent you from losing further by forcing a sale. For example those who bought Blumont etc who have stops.

2) You bought a good stock and poor market sentiment causes it to drop, triggering margin calls and contra forced selling by others. Stop losses enable you to exit first, take stock and re-enter at a lower price, giving you the same exposure and some surplus cash. There are numerous such incidents recently especially during the "fed tapering fears" period.

3) You bought a good stock and a flash crash occurs. You get stopped out at a low price and the market rallies without you. This is the only case where it is disadvantageous to have a stop loss. The Minzhong incident is the only recent such incident that comes to mind, where stopped out investors were unable to re-enter and benefit from the Indofood offer due to trading halt.

How often does a Minzhong situation come about?

In all fairness, Stock Market is a place where what seems impossible is possible. If only we know when the impossible is possible. Or if you can think the unthinkable then the unthinkable is not unthinkable after all. .

(22-10-2013, 04:58 PM)Temperament Wrote:

(22-10-2013, 04:00 PM)Clement Wrote: Let's examine the possibilities. (This discussion only applies to stocks which are reasonably liquid.)

1) You made a mistake and bought garbage. Stop losses prevent you from losing further by forcing a sale. For example those who bought Blumont etc who have stops.

2) You bought a good stock and poor market sentiment causes it to drop, triggering margin calls and contra forced selling by others. Stop losses enable you to exit first, take stock and re-enter at a lower price, giving you the same exposure and some surplus cash. There are numerous such incidents recently especially during the "fed tapering fears" period.

3) You bought a good stock and a flash crash occurs. You get stopped out at a low price and the market rallies without you. This is the only case where it is disadvantageous to have a stop loss. The Minzhong incident is the only recent such incident that comes to mind, where stopped out investors were unable to re-enter and benefit from the Indofood offer due to trading halt.

How often does a Minzhong situation come about?

In all fairness, Stock Market is a place where what seems impossible is possible. If only we know when the impossible is possible. Or if you can think the unthinkable then the unthinkable is not unthinkable after all. .

All the more necessary for a stop loss. Imagine news of a terrorist attack or something while you're in the toilet.