Friday, January 12, 2007

Note to self: placing a "stop loss" order

I think I'm pretty good at picking a stock that's been beat up and is poised for a rebound. I find a stock that meets all my criteria about once a year.

The stock has to be cheap; preferably less than a dollar. It has to have volume; over one million shares need to trade daily. It has to be a world class company, or it at least needs to be company that's got a very cool niche. Most importantly, I have to be sure (a really really good gut feeling) the stock isn't going to zero, and I need to have done a moderate amount of due diligence, which would normally entail reading a couple of articles and calling Invester Relations and asking a few pertinant questions.

A couple of companies that fit into these criteria in the past have been JC Penny, Kmart, Sirius, Delphi, American, and Delta. I was watching, planning, and at the very least, I was paper trading each one these stocks as they hit their lows.

Currently, I'm not zeroed in on any new stocks that are set for a huge rebound. I'm not even looking really, but there are companies out there. A good play in the future might be a company that does video rental downloads, but I haven't found a company that stands out--the world may not be ready for such a company.

Anyway, the point of this post is to talk about something I've realized about trading regarding placing a "stop loss" order. I have never used a "stop loss" order. I'm embarrassed to admit this, and I don't even know why I haven't. Maybe, it's because no one's really shown me how to trade, and I've kind of been figuring all this out on my own. I can't say how much money I've left on the table because I just sat there watched a profitable trade fizzle, it's a lot.

From this point forward, anytime there's money on the table there will be a stop loss order. Actually, anytime I place a trade the next thing I do is going to be placing a stop loss order.

It's kind of foolish to own a stock that's not doing what it's supposed to do. It's worth the $13 bucks it costs to make a trade, and the stock hasn't hit its bottom.

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