green green, page-17

Hi loser

I know some professionals who refuse to use stop losses, others who are highly disciplined at using very tight ones [5% - 10% below entry], some who set them at 1/3rd below the current trading day's low, some who set them at Fib retrace pressure points, some who use trading software stops such as the psar indicator, others who use trend support lines & others again who place stops at previous swing lows.

My most important stop loss came with the correction in August 2007 whereby I decided to leave at least half of my money invested in cash.

High market volatility has meant that even 10% stops can be activated on a daily basis - something I found to be a costly & stressful experience. IMO it's 'horses for courses' [I don't allow much latitude with spekkies any more] & after just 18 months of experience in The Market I now have exit targets for my stocks that look at the 50% gain level first & progressive selloff referenced to Fib numbers, Elliott Waves & GANN theory thereafter.

I use CommSec's online platforms & have learnt a few harsh lessons from using their conditional stop losses. The stories below are not intended as a model for you to follow - just examples of what can happen.

Much to my chagrin in one case with a 4.5c spekky but liquid mining stock I placed a falling sell stop ~10% below the SP [4.1c] with the instruction to sell at 4.0c. Someone dumped mountains of stock & my conditional stop loss didn't activate as the SP plunged to just 2.7c!

In general I don't set stop losses for my investment portfolio since I am comfortable with large movements in stocks like BHP & CBA - which I am in the process of actively trading & accumulating. However, if their SP surges [as with BHP recently] I will sell off up to half of my holdings as the gain approaches 50% of the SP, anticipating that the steam will vaporise & the SP will settle back & allow a subsequent re-entry at say a 50% discount to the swing high.

ASB is one of my favourite stocks & supported by a share buy-back its SP rose from $1.77 on Jan22, 2008 to $3.48 by June 6. Once it rose above 150% of $1.77 [$2.65] I applied a trailing stop loss which I progressively tightened from 20% to 5% - selling half at $3.14 on May 15 & the remainder at my ultimate target of $3.38 on June 2. By October 28 ASB's SP settled back to $1.38 while investors waited for news about pending US Defence contracts - upon confirmation of that news & the apparent emergence of a possible new bullish Elliott Wave formation I have started to buy back in from $1.85.

In summary, this little black duck [oops - I meant dog] tailors stop losses to suit the stock & to its current status. I acknowledge that this is not a KISS approach & recommend it to no-one except me!

4YIO - NFA