Quote:
Originally Posted by GregWeld
so while I certainly understand them and will explain them here I don't think they're a good strategy for Investors 102...
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I completely agree with the risks of setting a stop on your Steady Eddy dividend paying stocks. You are correct that getting stopped out would not be beneficial to the long term strategy.
Going back to the quote I highlighted earlier, there are certain stocks (NLY) with a known potential catalyst (rising interest rates) that you would want to bail out of before you take a 50% (or whatever % you choose to be tolerant of) hair cut. These stops do not have to be kept "tight", within 5% of current market value. My view is that this could allow me to
notbe the guy watching the market all day every day because I know that if things get rough, I've got a standing order to get me out.
Which leads to my next thought. I can use a trailing stop (set at any amount below current MV according to my individual risk tolerance) on my more speculative plays to "lock in" a profit as discussed in your tax post a couple days ago. Profits are good, so if things get rough, I can take my profit and retrain those soldiers. If things continue to be good, my stop will increase accordingly to lock in more profit.
Again, these stops don't need to be set tight and I gain the freedom to not be watching the market all day to make this happen.
Edit: Personally, I will put a stop below where I deem the technical "support" level to be, so that if the bottom is falling out of a stock I can get out as well. Plus, nobody says I can't buy back in when the stock has found it's next support level. These may be the strategies of someone who is risk averse, but when you're playing with my bankroll, ya gotta be careful!!