The problem with stop-losses....
Regular readers will remember my post a few weeks ago about my Facebook trade which had been closed out for a nice profit by it's trailing stop-loss order. Here is a picture of the chart then:
Well, since then things have moved on. Here is a chart of Facebook now:
The price is above the ma50 (the average price for the year), and I wish that I still owned Facebook! 20% of the worlds population logs into Facebook once per month, and half of the worlds internet users, use it actively. Amazing statistics. However, mostly I am a technical trader, and I guess what mostly makes me wish that I still owned the shares is that the price is above the ma50. I know that if the share price was still below the ma50, I would be happy to be out of the trade, in spite of the amazing statistics.
You could say that I was 'bounced' out of the market by random trade 'noise'. One possible way to avoid this is to look at the markets over a longer time-frame, say monthly, instead of weekly, and use a closing price, not a candle-stick, in order to make a buy/sell decision. Here is a monthly graph of Facebook with a closing price-line instead of candlesticks:
Using a monthly graph like this would have helped to stop me being stopped out, if I had not set a stop-loss, and only made a buy/hold/sell decision at the end of the month. This technique would have kept me in the trade in this case. This latter technique would not protect me from a 'flash crash' and continued fall in share price.
So, it depends on the style of trader that you are, as to which is the best approach: weekly or monthly analysis? Trailing stop-loss, or end-of-month analysis? As I create my asset trading portfolio I shall be moving towards a monthly trading analyis, because it helps to remove some of the 'noise' from the market.
I shall give you more information about this trading strategy in the weeks and moths to come.
Have a great week!
Well, since then things have moved on. Here is a chart of Facebook now:
The price is above the ma50 (the average price for the year), and I wish that I still owned Facebook! 20% of the worlds population logs into Facebook once per month, and half of the worlds internet users, use it actively. Amazing statistics. However, mostly I am a technical trader, and I guess what mostly makes me wish that I still owned the shares is that the price is above the ma50. I know that if the share price was still below the ma50, I would be happy to be out of the trade, in spite of the amazing statistics.
You could say that I was 'bounced' out of the market by random trade 'noise'. One possible way to avoid this is to look at the markets over a longer time-frame, say monthly, instead of weekly, and use a closing price, not a candle-stick, in order to make a buy/sell decision. Here is a monthly graph of Facebook with a closing price-line instead of candlesticks:
Using a monthly graph like this would have helped to stop me being stopped out, if I had not set a stop-loss, and only made a buy/hold/sell decision at the end of the month. This technique would have kept me in the trade in this case. This latter technique would not protect me from a 'flash crash' and continued fall in share price.
So, it depends on the style of trader that you are, as to which is the best approach: weekly or monthly analysis? Trailing stop-loss, or end-of-month analysis? As I create my asset trading portfolio I shall be moving towards a monthly trading analyis, because it helps to remove some of the 'noise' from the market.
I shall give you more information about this trading strategy in the weeks and moths to come.
Have a great week!
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