#277: Where's your stop loss

Simon Shares

• Telkom (JSE code: TKG) has confirmed government wants to sell their 39% stake in the company, likely to bail out SAA. Classic rookie error, exiting good trade to keep bad trades.
• Amazingly good results from Home Choice (JSE code: HIL), but with zero liquidity in the stock the results are merely of passing interest.
• Decent results form AdaptIT (JSE code: ADI) albeit some margin pressure in the education and financial services segments albeit with the latter doing decent revenue growth. All considered around 900c price is a fair value.
• I mentioned last week I was digging more into ADvTech* (JSE code: ADH) to determine a price to buy at and have now started buying with my fair value (so price below which I am happy to buy) being 1970c.
• The Harvey storm has hit land again, this time at Louisiana and this is just next to Lake Charles where Sasol* (JSE code: SOL) is building their Ethan Cracker plant. So far Lake Charles has been spared the worst of the wind and rain but we have a few more days of rain to come. The Sasol project will almost certainly be delayed by some amount (and hence costs) but as yet management have said nothing.
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* I hold ungeared positions.

Where's your stop loss?

The #ALSI gives us a free lesson in stop hunting pic.twitter.com/EkqvebhUkV

— Trader1137 (@Trader1137) August 30, 2017

 

As a trader your stop loss is your most important decision as it protects your capital from destruction. Sure it is hard emotionally cutting losing trades, but that's a lot harder then going bust - so every good trader is ruthless with their stop losses.

But where to place it is hard.

Point is - don't be obvious when placing a stop loss. Don't make it too tight or place it where everybody else would place their stops. Other traders will go stop loss hunting and will shake you out. If you find yourself being stopped out only for the trade to reverse and go in your initial direction - widen your stops. That said careful your stop loss isn't so wide that your system starts to lose money.

Yes stop losses are hard. Hard emotionally as we're losing money and even harder to know where to place them. But without a stop loss process as part of every trading system you will go bust. So spend the time working on your stop loss placement within your trading system.

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