Another Good Example of the Value of Stops

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As most of you know, I tend to have a large number of small short positions – as of this morning, 70, but as of now, 69 – and it is the elimination of one of those by way of a stop-loss order I want to mention herein.

Things were sailing along smoothly this morning, when all of a sudden, I saw a very, very large loss on one of my positions. It appeared from out of the clear blue sky, and my first thought was that I must have been short some stock which was being taken over, and they had only commenced trading very late in the day. The stock was BMC Software (symbol BMC).

Well, I’m not sure the reason for the jump, but the stock had, in fact, been trading normally all morning until – blammo – it exploded higher. I was relieved (to say the least) when the huge loss on my spreadsheet was a phantom, since my actual trading screen (where RealTick resides) shows I had been stopped out of the position at a not-at-all-bad price.

0321-bmc

A $500 loss I’m fine with; a $2000 loss on a single position would really bug me.

My point is that the so-called “mental stop” is for the mentally ill. You can promise yourself up and down that you’ll close something out if it crosses a certain point, after such time as you’ve had an opportunity to rub the whiskers on your chin (I’m looking at you, Yellen) and consider whether or not to take action.

Poppycock! You don’t have time to think. Let the stops do the work for you. God of Stop-Losses, we salute thee!

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