Always respect this forum for some sound advice.
I have mostly Index Tracker ETFs and a couple of direct investments in shares,
Do you all bother putting in Stop Losses for your holdings, and if so, what sort of values.
I need to do for each line of investment, every time i bought shares (even within the same ETF tracker).
Im not complaining about that but wanted to get some advice first before I started the process.
I don’t want to sell my etfs, even if they drop in value.
It is a form of market timing that doesn’t work
What platform are you talking about?
On IB you don’t need to do such a thing.
I don’t have such insight where I could say “Oh if it drops 5%, I know it will continue dropping even more”. So I would just end up selling low with such a strategy…
It’s a risk mitigation strategy, it’s not aimed at increasing returns (they’re very likely to be less than if the capital was staying invested) but to help guarantee that a certain set amount of money is available “at all times” (which it’s not, trading can be blocked, brokers can be shut down). The way to use it to increase returns would be to leverage the positions and use the stop loss to prevent margin calls.
Adapting the asset allocation to increase its conservative part would be another way (better?) to handle it.
I’d not use stop losses if the goal is to optimize returns.
Tell that to people who sold when COVID came about last year.
Then again, you might tell it to people who didn’t buy again after the drop.
In any case, in a long-term perspective, with long-term holdings, a stop-loss is quite pointless IMO.
Unless …you’re trying your hand at short-term trading / speculation.
Then it can, of course, be very useful.
Or… if you need a certain amount of money within a certain timeframe and can’t afford to lose that.
To answer one of the questions, I use Cornerbank and their software requires the stop loss to be put next to each individual Buy trade.
I agree with the idea to stay invested. In fact in March last year when it dropped I didnt sell and in fact bought a lot more. So i am not adverse to risk
But my thought is that a stop loss would crystalise the gain, and mean that as the fall continues, i then buy back in. I agree that the shares i have bought would eventually recover (like they did in 2020).
Im only talking about a major event or fall, say 30%.I would have a stop loss for say 20%. Then i would have saved the further 10% drop and therefore wouldn’t have to make the 20% uplift back to make it up.
Just a thought, and I’ve only invested for about 2 years, so i don’t have a lot of knowledge or experience.
Its a set and forget strategy, but just wondered about a stop loss to aid in a catastrophic market event, not for use in normal day to day movements.
Thanks for your thoughts.
Yes, but it is equally likely that it starts raising just when you sold your shares.
The problem is that you don’t know that it will go to -30% just because it went to -20%. What if it just goes to -21% and back up before you can rebuy?
Yes that is very true. Perhaps I am over thinking this.
Could not see this being discussed very much here, perhaps thats why
As others have said, we only know the behavior of drops in hindsight. During the fall, at any point, it can still go back up, or down some more, or stay flat for awhile. I’d suggest studdying the 2008 event, this one was full of false rebounds (on top of the uncertainty of still having your assets the next day in case your financial institution went belly up).
In case you’re interested, I’m conducting a similar experiment: Timing the market using moving averages - an experiment
The goal is simplicity and drawdown reduction. While I’m confident the 20-4 strategy should improve returns on the long term (but requires selling assets held for less than 6 months at times, so may bear some taxable risk if implemented at a larger scale), I have no guarantee for it and that’s not a bet I’d be willing to make.
I see it more as a way to use a more agressive asset allocation (so the gains come from holding more stocks in good times) than a returns winning strategy in and of itself.
Thanks for sharing. An Interesting read.
I think for now, i will not put in any stop losses. And keep to the original plan of just forgetting about it!