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“Putting a big stop loss on a volatile share ahead of trading update only for a disappointing update…”

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The mental aspect of dealing with silly losses is hard to get over…recent drop in bitcoin, 20% drop, I did not have a stop loss and despite getting out with a healthy 100% profit still hurts I could have kept that to 10%. I have only 12 months experience. Grown my portfolio from £17k to £44k in the 12 months steadily, profit is currently £2k (after fees). I was in the red after 6months and since have steadily turned a profit or broken even every month; came out of red in January 2021. I don’t day trade but are fairly active trader (5 – 10 trades in a month, UK and US); most holdings are 3 – 6 months; some held for last 12 months. Losses have come from mainly 5 trades and was in hindsight overweight on these, so losses were big hits. Not putting a stop loss when I thought I should but thought I could react without one. Only for the SP to drop sharply on bad news. Recent Tech stocks drops. I put a stop loss too tight and was taken out only for the SP to gain significantly shortly after. Putting a big stop loss (still at a profit level) on a volatile share ahead of trading update only for a disappointing update to cause the SP to gap below my stop loss and cause a loss (30% profit turned to 10% loss) the SP later in the same day recovered at what would had been a breakeven level; (should have hedged my bets and taken some profit ahead of news).

Enjoying your book, only started this last month to use trend trading principles.

Ricardo

What is your strategy?

My minimum goal is to grow my portfolio to £320k over 10years; adding on average from my fulltime job earnings £1k every month. I calculate that is about 8% compounded annual growth from where I am now. My aspiration is to make this a substantial added monthly income to support my retirement and not be always reliant on current 9-5 job. Strategy started as combination of value (companies hit by the pandemic) and growth (companies doing well from pandemic) largely based on media/news information and genral internet investment sites and magazines. I started passive (buy and hold) but in current volatile market that led to big losses pretty quickly on some stocks I should have sold. Last 6 months, my strategy is still a combination of value and growth but managed more active in terms of cutting losses and adding more stocks. My risk has generally been managed by keeping my initial position small; I tend to start with one of three amounts (£400 – £700 – £1000) depending on confidence level. That is perhaps something I need to change because working with small position means I can tolerate big percentage drops in any one stock without feeling I must sell but when I have multiple small positions these drops quickly add up. It also leads to perhaps too many stocks (over 70) to actively manage and cumulative risk is perhaps higher. I am considering reducing my number of stocks and increasing my positions but manage risk through the use of appropriate stop loss level keeping my risk to £150 per trade and aim for a risk/reward ratio. I started only this month looking at trend following and how I can incorporate the principle in my existing portfolio and going forward.

Ricardo

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