The reason for this post's title is that two of the nine positions I got bounced out of this morning were BLK and ICE, and I thought I'd do a quick post about the value and rationale behind stop prices.
To my way of thinking, 80% of the value in technical analysis comes from knowing when you are wrong, not knowing when you are right. Dealing with things when you are right is a cinch. There's nothing I love more than resetting a stop on a position to an increasingly favorable price with the purpose of locking in better and better profits.
That doesn't always happen, of course, and the more important situation is getting pulled out of a position when a given thesis of yours turns out to be incorrect (or at least delayed).
Take ICE, for instance, which has long been a favorite of mine. Based on its pattern, what it should have done is broken beneath its July 11th low of $80.20 and plunged. What has been happening for the entire month of August, though, is a consolidation in the $80 to $90 range and, this morning, a small breakout above that range. Thus, I was stopped out for a loss on the position.
Does this mean ICE will never plunge? No. Does this mean that my observation of the pattern's potential was wrong? No, unless it eventually pushes above $117.25. What it does mean, though, is that this stock is not behaving in the way it needs to behave for me to make a profit, and I'm not comfortable waiting for "something else" to happen; I would rather be out of the position altogether and continue to observe for another possible opportunity.
