Hello investors and traders,
Recently, in the Charts For Freedom portfolio I had a position get stopped out just two days before a 36% selloff occurred. There was no hesitation when it came time to close the position after the stop condition was triggered. I was happy to preserve capital and move on. Before I take on any new trade, I look at the chart to see where I will be stopped out. I do this EVERY time before placing a trade. If I can’t come up with a good stop level, I pass on the trade.
Here is the update that was sent out to premium subscribers last weekend alerting them of the position to be closed out (link here):
Hello investors and traders,
I want to first start out with a portfolio move that will be coming on Monday: Close out position in BMRN. The pre-determined stop loss level was triggered, and with the weekly close below $118.48, I will be closing the position first thing Monday morning.
Here is the update I sent to premium subscribers on Monday (link here):
This is an update to the yesterday’s post (link here) where I mentioned the stop loss of BMRN was triggered. Near the open this morning, I was filled on the market order to sell out the position.
BMRN: Sold entire position, filled @ $119.26
Here is the chart:
Before the trade, I decided on where I would be stopped out. In this particular case, it was very prudent to get out once that weekly close below $118.48 area occurred because it showed the strength of the bullish trend was weakening. BMRN had also closed below the 10-week SMA in the week prior. This is usually a red flag for me, but I stayed in the position until my pre-determined stop was hit. Are the selloffs always this drastic after being stopped out? Nope. Often times there are shakeouts and price recovers quickly. But I never doubt my stops, even if I suspect I’m being shaken out. The above chart is a fresh reminder for me as to why I don’t doubt them.
I’m reminded of the first time I ever read about using stops that actually resonated with me, it was from the Wall Street legend Richard Wyckoff. In his book “The Richard D. Wyckoff Method of Trading and Investing in Stocks” (Section 23M Page 5) he says:
“The use of stop orders will increase your mental poise. This is a very great requisite (Sect. 25M, Pg. 1, Pars 1 & 2). Dixon G. Watts, one of the most successful cotton operators of half a century ago, wrote this among the fundamental principles which lead to success in speculation: "Act so as to keep the mind clear, its judgment trustworthy." Your mind will be clear if you decide on the amount of your risk when you start to operate. But if you neglect to place a stop, and leave yourself open to a loss out of proportion to your possible profit, your mind is apt to become confused and you are likely to do the wrong thing at a critical time.”
Have a great week and respect the stops should they get hit!