The other day I put up a post about Uranium and disclosed putting a stop in on Cameco (CCJ) at $45.50.I got stopped out yesterday at $45.51. It looks like the stock closed a tad lower but then opened higher today by a few tads.
This reveals a flaw of stop orders that I have touched on many time before. When stop order gets elected the next move is either up or down. If down then the stop order was a good idea, if up it wasn't; in a manner of speaking.
I have no regrets, just the understanding that $45.51 will either turn out to be a good price or it won't.
The picture is a little fuzzy but it is the exact moment that Kramer says "I'm out." I can't believe I found it.
4 comments:
let's see if i understand your strategy...you wanted to protect profits so you sold a portion of a position with a stop order...was this a contingency on the stock going up or down?
i would suggest reading the post linked to in the text for context.
i had the CCJ and still own U.TO. Both went almost parabolic in the course of a week or two leaving me with more exposure than i wanted.
I placed a stop order on CCJ to protect the gain. No stop on U.TO as Schwab doesn't accept stops on that one.
Yes indeed!
You hit on the exact concerns that I have with the stop-loss mechanism:
- If you put it too tight, you risk catching a downward spike and you are out, especially with volatile issues like CCJ.
- If you put them too loose you risk not bailing out soon enough in case of a major market meltdown.
Here are my two thoughts on stop-loss orders:
1. A planned sell is almost always superior to a stop-loss being triggered, you can use a "greater than" limit price to get a reasonable deal.
2. It is still an essential mechanism for protecting your portfolio against major sudden meltdowns - I do it extensively but I try to adjust the tightness to the expected volatility of the issue, my purchase price and the amount of time I have held the issue - you don't want to be stopped out on a gain one day short of one year making it a short-term gain.
Thank you for all the excellent and thought-provoking work,
SA.
Roger - We are creating an automated web-based exit system called ProtectProfit$ and I was wondering if you might want to review the design so far. Chuck LeBeau is our leader in this effort.
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