Using Stop Loss effectively on long positions

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by ElegantEntropy


So I wanted to check if most folks with long positions use stop loss and if yes – what strategy do you use?

Some set it at 10% or there about thinking that one doesn’t want it to trigger during normal fluctuations of a stock. This allows one to nor worry that position will be sold due to daily volatility and it stays in portfolio for the long run. Unless of course, stock crashes at which point SL kicks in and position is liquidated preventing further losses. However, this does lock in 10% loss in the position.

The other methodology is to set it closer to current price (within 2-3% or even less for less volatile stocks) in order to ensure that as the stock goes up, any drop more than a few percent will trigger it and not lock-in more significant losses. This creates a different problem as the price may dip momentarily and then recover, but the stock will be sold and if you want to continue holding a long position – may need to re-buy at higher price.

Both of these can benefit greatly from being reviewed regularly and Stop Loss raised if the stock has gained in value, so the gap between price and SL remains the same (whatever you use – 10% or 2%). This way if the stock gained and you up the SL, even if it is triggered you may not see any losses and still take a profit. Then if SL gets triggered and prices goes even lower, can always buy them back for less than sold.

Obviously, both suffer from being market orders with no price guarantee.

  1. Does anyone use these regularly?
  2. What about using it as a setup for a market crash exit in long positions?
  3. Any other strategies/setups?

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