Stop Loss strategy....

chamith · 1 Stop Loss strategy.... Sun Feb 13, 2011 9:28 pm

chamith

Assistant Vice President - Equity Analytics

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Hope you all know about this strategy. This is mainly use gold trading. Even in stock exchange also traders use this strategy. When you buy a share you set a level of risk you are going to undertake. Say you undertake a -20% risk. If the share prices go bellow -20% according to this strategy you should sell it to prevent unbearable losses. The stop loss level is the loss that you can afford to loss. Crying or Very sad

But in CSE recently I have seen this strategy does not work well.

Eg 1 - ATL was at 4.10 LKR and after right issue announcement this dipped to 3.50 LKR and after few weeks now rising up to 3.90LKR

Eg 2 - PCH went up to 23 LKR level before the price band and drained down to 13 LKR levels before shooting up to 32 LKR.

Its true using this strategy you can get a affordable loss and reduce opportunity cost by shifting the money into another winner shares. There are advantages and disadvantages,

So what do you all think about this strategy ? how many of you all use this strategy ???

invest-abc · 2 Re: Stop Loss strategy.... Sun Feb 13, 2011 10:25 pm

invest-abc

Manager - Equity Analytics

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My view is that stop loss strategy should be used to protect your investment from overall market downsides due to various macro economic factors. (This will enable the investors to cut down on losses and to re-enter at a lower price to maximize on gains) . eg: the overall market downturn we saw during early November last year. But I dnt like the idea where we think of a particular share in isolation. Because if we knew what we are buying we should not be worried about day today fluctuations of the price.