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Buying back stocks after a stop loss limit executes

slick
in Off-Topic
I know there are members like myself who own stocks in addition to funds and etfs. I have 10 stocks in my retirement portfolio ( plus a few in my taxable account for the dividend income), a few of which I consider more speculative, but I keep those under 5% of the portfolio. I put stop limits on most of the spec stocks, and about 50% of the time, they hit. Sometimes it hits the stop limit and goes right back up. Today I bought back two stocks, Lincoln Electric ( LECO)and BE Aerospace (BEAV) that only briefly went below my stop loss level. Have you found that it works in your favor to buy them back more often than not? Would love to hear others experience with this. BY the way, the stop loss is usually is pretty liberal, about 15% below cost, since small caps are very volatile at times

Comments

  • TedTed
    @slick: The stop loss order should conform to the individual stocks volatility. My suggestion would be to plot an individual stocks volatility over an extended period of time in order to determine the percentage of the stop below cost. I've been stopped out several times and like you generally buy the stock back.
    Regafrds,
    Ted
  • slick
    thanks Ted, my FA does plot the stop by the technicals, it just seems they generally end up at about 15-18% below cost. Its usually when they break through the resisitance level we counted on:)
  • heezsafe
    edited October 2014
    @slick Are you aware of the shitshow that was the NYSE today?

    http://www.zerohedge.com/news/2014-10-30/market-breaks-stocks-explode-higher-algo-triggering-headline
  • LLJB
    The simple answer is I don't set stop loss orders so I couldn't offer any experience regarding whether its more often better to buy them back or not. However, if the stop loss is set based on technical indicators, I would expect the answer depends on how much technical damage has been done. I'd be considering things like what the volume was telling me, how long the stock spends below resistance, whether the resistance is short, medium or long-term, and I'm sure there are other factors you could consider as well. I would hope your FA could tell you whether the stops are intended to be hard or soft stops and what the key factors to consider for each stop.
  • Tampabay
    Let me get this: sell stocks after they lose X% buy back later at a (higher) price...?
    Try this: sell stocks after a big run up( pocket your profits) then IF they fall.... buy them back (with profits)......I find it works much better than "stop loss" but that's just me.
  • slick
    @tampabay, when I do buy them back, its usually right away, after they have come back from breaking through resistance. For instance, today I bought back BEAV at 74 after stop loss at 73. If they come back stronger, I wait until it tests lower. Some stop losses we put in to protect profits, and those I usually do not rebuy, I move on to something else or add to an existing stock or fund.
    @LLJB, thanks for your input, I rebuy only if it goes below resistance for a short time, or in special cases such as general market downturns as we recently had.
  • rjb112
    I've never set a stop loss. Maybe I should have, who knows, but I recall Peter Lynch in one of his books said he didn't like them, because the normal, expected volatility in stocks was so high, there is a very good chance your stock will go down enough to be sold. In the past couple of weeks, one of Barry Ritholtz's articles pointed out that even if one had picked the most amazing stocks, like Apple, Google and some of the other best longer term performers, you probably would have sold them and not made the incredible gains.....because the volatility was so high. It was super common for the very best stocks to have gone thru periods with large temporary losses, you would have sold out.
  • Tampabay
    Even .300 hitters have bad days, weeks, months...should you kick them off the team?
    Not me!
  • scott
    Again, I'm all for different ways of investing.

    Personally, if I own something, there's a thesis/theme as to why and the intent is long-term with reinvesting dividends. I don't set stop loss from the standpoint of the only reason why I'm selling is because something about the thesis changed.
  • AKAFlack
    The correct Terminology…

    Resistance: Resistance is a price level at which there is a large enough supply of a stock available to cause a halt in an upward trend and turn the trend down. Resistance levels indicate the price at which most investors feel that prices will move lower.

    So, Resistance can be thought of as a CEILING.

    Support: A price level at which there is sufficient demand for a stock to cause a halt in a downward trend and turn the trend up. Support levels indicate the price at which most investors feel that prices will move higher.

    So, Support can be thought of as a FLOOR.
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