Stop Loss to mitigate losses

Stocks A to Z
1

Any thoughts on how much to put on a stop loss. What do you do as a guide to help me learn how much to put on downward side to know when to sell if a stock starts dropping.

2

Because of market volatility, stop losses often trigger soon after placed. I don’t use them but would not place one until you have significant gain.

Better to sell part of your holdings to reduce risk and continue to let winners run with your gains.

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3

I prefer trailing stop losses when I want to use them, but not all firms offer such.

As mentioned previously, stop losses can be very tricky. There is no right or wrong answer on them but you should develop a methodology and stick with it. Some may start with a simple “loss of 20% or 30% protection” but on a stock like Tesla (Beta of 2.3), that could trigger quickly during times of volatility.

Instead, you might consider setting such based on standard deviation of the trading price. From what I can see, TSLA has a standard price deviation of just under $64 (but that might be old data). Setting your floor at some multiple (1.5x, maybe even 2x) of that might be good method as well.

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4

Stop loss orders are a trader’s tool, not an investor’s tool. If you can’t stand the volatility that stock is not for you as an investor.

BTW, when the price triggers the order it becomes a market order. If the stock crashes and your order is low on the list it can sell well below the stop price.

The Captain

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5

There are so many arguments against trailing stops but if I do experience some healthy gains again in my life I plan to use them. A friend who has allot less money than me and who sits on the edge of his seat watching his stocks has been using 5%-10% trailing stops. If one is triggered he just watches and buys back if temporary, whatever.

During the great Saul Crash of '21, ‘22 where many of us lost 65%-75% of our YTD (supposedly by believing in SAAS stocks or becoming too spoiled), using trailing stops would have saved me ALLOT of money. My friend still has most of his money by using trailing stops.
Just sayin’. . .

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6

Of course to do this you must have profits or have it in a tax preferenced account like an IRA or Roth. If sold at a loss, wash sale rule prevents this. You lose the ability to claim losses on taxes.

Stop loss works best when you have nice gains to protect. And gives you a 5 to 10% reduction in value. Better to sell some at market.

7

Yes. Sounds correct to me. My stocks are in retirement account. Also, I had averaged 55% a year until the great “crash”. So I would have been well rewarded should my hindsight have been 20/20, which sadly it was not. Deserved what I got, flew too close to the sun.

Cheers
MS