My stops keep getting triggered then the stock goes up again. Any way to protect myself and avoid stop orders?
Answers
474 points
spider348 answered one year ago …
you can hedge in an uncorrelated stock, widen your stops, or try using discretionary soft stops instead of hard stop loss orders - depends on your tolerance for risk. this market is whippy so it is no suprise
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989 points
rvilmur answered one year ago …
When you make a mistake and the stock price starts to go against you, you have three choices put in a hard stop (which will get picked off by the market makers), nothing, which can be very expensive in a market like we have now, or buy a protective put to cover some of the losses in the stock price.
When buying a protective put, you have to consider the expiration month (how much time value do you want to buy), the strike price (current delta determines how well the put will follow a falling stock), and the implied volatility (how expensive is that time value you are buying). If the implied volatility is too high, it means that you are in a crowd and it may be best to just sell the stock for the tax loss. When you go for a low delta put, it is cheaper but does not provide much insurance until the stock falls a lot. The expiration month picked depends on what your outlook for the stock recovery is and when you think it will happen.
As with all insurance, you really want the Protective Put to expire worthless because the stock really reversed and gone back up. Only if your timing is impeccable on the depth of the dip do you want to sell your put early.
2082 points
alanj answered one year ago …
You can also try buying the stock at a different price. Buy with the trend and momentum. Wait for the stock to dip then buy at the previous days high (provided the previous day made a normal down swing and not an out of the normal drop) and place your sell stop at or just below the previous days low. If the buy order doesn't get triggered keep moving it after each day.
The other alternative is to do what Warren Buffet did. Buy a strong company that has been beaten down. Hang on for the long term and don't use stops. If it goes down a whole bunch more then buy more. The market will recover eventually. That is if you are willing to wait it out.
139 points
lytle answered one year ago …
I can't offer you much advice except to consider a trailing stop which is usually my choice. If you use a hard stop set at a support point it will get picked off by the market makers like rvilmur points out.
I have been disgusted so many times lately when I set a reasonable stop and it gets triggered by a huge swing. It's this crazy volatile market!
Good luck and make money!
Don
249 points
engcomp answered one year ago …
alanj is right - buy a strong company that has been beaten down and forget any stops. The problem is that sometimes "strength" is created with smoke and mirrors and the market is beating down for a good reason. Of course, Warren Buffet's skill is in knowing the difference between real strength and make-believe strength.
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4085 points
EthanR answered one year ago …
Good answers above. I might add the following. Do not put stop loss orders right under previous lows, or the market makers will pick you off which just causes a new low. You have to give it some room below previous lows.
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