3 reasons not to use Stop Loss – answer to Jon Trausti’s question about Free Stock Strategy May 28, 2012Posted by deminvest in investment, nasdaq, stocks.
Dear Jon, thanks for your very good question about Free Stock Strategy :
Dont you ever use “Sell Stop” for stocks you buy? … for example, many suggest you always use 5% “sell stop”.. or 10% .. and just buy some other stocks, if the ones you bought are not going in the direction (up) you hoped/wanted ?
It is for 3 reasons
The only way to make money on the stock market is to buy low and sell high.
Most stocks move together up in good times and down in bad times. Automatic stop loss results in forcing to sell a bunch of stocks, even good ones, as the market sinks.
With my strategy, I have to buy every month, even when markets point down. In bad times I can hardly sell any stock because they can’t hit “up 40% target” in bad times.
As soon as market recovers most stocks that I buy in bad times hit my 40% up target and I make money.
What I accomplish that way is buying low and selling high. The best think is that I do it automatically, without having to understand or forecast what is going on in the Economy.
If we look at the last 10 years, we can see that if I had bought every month and if I had a stop, I’d have sold with a big losses every stock the next month in 2002, 2007 and 2008. Without stop losses I was just buying a stock every month in 2002, 2007 and 2008, when they cost about half the price they have now. With my strategy I sold a lot in 2004, 2007, 2011, because stocks were doubling up, making it easy for me to reach my 40% target on most stocks. What is great it that happened by itself, without any need to be an Economist or a financial analyst.
I don’t trust banks, traders and markets. In the short run they can manipulate a good stock and send it down 10% to take advantage of your stop loss and buy cheap. They did tricks like that several times lately and they blamed “computer mistakes”. I wrote about those dirty tricks here
I have the ability to invest $1500 every month. I hope I will not be forced to sell. I sell to make more money, not because I do need the money. This is the only way to execute free stock strategy.