 Quote:
Originally Posted by dixonge
But a strict stop-loss strategy (pre-defined and you stick to it) takes the guess-work out of it. Getting that set at appropriate levels (%? x$?) takes some experimentation or backtesting. Emotions have to be minimized.
It's still market timing in a sense, but the guess-work (so to speak) is built in up front in an effort to survive losses and maximize wins.
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OK, a strict, pre-defined stop loss takes some emotion out of it. But I question if it is a good financial move. I have yet to see any evidence presented on this by anyone.
Stop losses don't help you financially if an investment dips, and then returns to previous levels - you just "bought high, sold low". I would need some evidence that the money saved by bailing out early on a real dog is greater than that lost by selling on a temporary dip.
Stop losses can also fail when a stock drops when markets are closed. If your $100 stock with a $90 stop-loss closes at $100 and opens Monday AM at $50 - all you will get is $50. It does not happen often, but it happens.
-ERD50
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