New stop loss prices, a question and the strange case of MAXY

The strange case of MAXY

I sold MAXY, but I did not want to. Let me explain: I use eTrade for my trading and there is a technical detail that made me sell MAXY yesterday. eTrade uses Ask Prices for buy orders and Bid Prices for sell orders. So, since MAXY's Bid Price went under $6.63 my order was executed at $6.83. The day low was $6.75, thus higher than our stop loss level. I do not know if other trading platform manage stop loss orders in a different way, but I consider this as an accident that can happen.

The bottom line is that I take home a 9.5% loss on MAXY. If you still have it, keep the stop at $6.63.


Current portfolio and updated stop loss prices



The new stop prices I would suggest are:

• APOL: Stop at $61.14
• BUCY: Stop at $29.13
• CMTL: Stop at $33.27
• ENDP: Stop at $21.66
• EROC: Stop at $3.23
• LHCG: Stop at $24.02
• MIR: Stop at $15.75
• WDC: Stop at $32.30

The question

I received the following question in a comment:

Quick question, how effective are stop losses? I assume you're putting a stop limit on these prices, but on some of the riskier stocks, if the stock opens up really low, the stock will automatically sell. Is that a good strategy?

I try to answer, but my opinion is not necessary matching your idea.

Stop Losses are statistically effective. I mean they usually work. I read books and made simulations and I found the method I use to calculate stop losses works well (on average). It happens stop losses are violated and stocks are sold, and after that they continue to go up. For me it is just part of the game.

There are basically two ways to manage stop losses:

1. Set stop loss orders (this is what I do). If the price goes down during the day the order is executed automatically. Then the price can go up again in a dragonfly doji.
2. Simulate stop losses. Set alerts on stocks at the stop loss level you want. If the price goes down you get an email. At the end of the day you check. If the close price is below your stop loss then you sell the following day on open. What I don't like in this approach is that a stock it may happen to lose 30% in a day. If you use this method you sell the day after losing 30%, while with method 1 you sell during the day when you lose, let's say, 15%.

Your choice. I hope this can be of any use for you.