Most people already know that investing (or trading) is not just a matter of having stop loss orders in place.
Whatever the market environment – bullish, bearish, or range-trading – there will be specific stocks that decline. During yesterday's market, with the bogus White House bombing announcement, there were many chances for profit and loss.
The scorecard of winners and losers:
Rather than following a mechanical system of stops, it is far better to have a fundamental target for buying and selling. If you had that approach, you might have found some bargains yesterday.
Whatever the market environment – bullish, bearish, or range-trading – there will be specific stocks that decline. During yesterday's market, with the bogus White House bombing announcement, there were many chances for profit and loss.
The scorecard of winners and losers:
- If you were trying to "protect" positions with trailing stops, you were a loser. You sold at a bad time (just as happened in the Flash Crash) and you must now decide whether or not to "chase" to re-establish your positions.
- If you liked the market and had a shopping list, you might have had working buy orders. Congratulations! You are an instant winner.
- If you were in on the bogus announcement, you might have been selling short in front of the news or buying when it occurred. You have cashed in, and now you must avoid prosecution. The SEC investigates some such trades, but does not do enough. There were many profiteers in 2008….still enjoying their gains.
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Investment ConclusionRather than following a mechanical system of stops, it is far better to have a fundamental target for buying and selling. If you had that approach, you might have found some bargains yesterday.
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