My Longkang

Guest writer- Jeff-N-Perth
Well if you haven’t heard, there was a signifcant fall on worldwide stock markets
on Tuesday 22 Jan. Unfortunately I was caught up in it. My shares went down, and
worst of all ….I still owned them

Now I’ve read about the stop loss method for protecting yourself from unexpected
price falls, but silly me I failed to implement that idea and I’ve paid the price
for not being diligent.

But as I say to many people, and my friend Amilcar would agree, mistakes are only
what you perceive them to be(good or bad?) and as a consequence I have now
implemented ‘Stop Loss method’ using Westpac Broking Conditional Orders. So, in a
way, this a learning experience.

Stop loss method is nothing new. People have used it for long as we have been
trading things of value. Pickup any stockmarket trading book and they’ll mention
setting a stop loss to reduce your risk. There is time to exit a trade when things
go bad, better sooner than later. Stop loss can also be used as a profit protect
as well (arrghh so many times I’ve had my shares go up and I’ve failed to
sell!!)

Stockmarket crashes can be a great opportunity to make money, and as a result many
share traders made a cool 10%-20% gain on the Wednesday *after* the crash. Compare
that to the typical 6% *per annum* you’d get at some bank.

Jeff not silly….I took the opportunity to BUY on Tuesday. I picked up
Kalgoorlie Boulder Resources(ASX:KAL) 14200 shares @ 14c each. The next day put a
stop loss to trigger at 14c( the same price I bought at) so if th shares go down
to 14c, then the stop loss triggers and on the market they go for sale and I’m
outa there! Let those suckers(the shares) fall to 11c and I’ll buy them back haha

Fortunately KAL shares are now trading at 16c! so I’ve upped my stop loss to 15c.
It’s no longer a ’stop loss’ and is now a profit protect( though not a big profit)

The great thing about automatic stop loss orders are, it removes the emotion from
the trading. It’s becomes a automated mechanical process. It’s so easy to get into
the mentality of ‘it’s OK, they’ll go back UP’ ….Bugger that emotion it’ll lead
you astray more often than to think.

Interestingly, I feel that ’stop loss method’ can be applied to other parts of
your life and not just the stockmarket. There are times when you have to limit
yourself from too bigger failure. You have to set a lower limit of how much you
can take before you say “I’m not doing this any more”. How many times in your life
have you said, I should done this years ago? Unfortunately we don’t have an
automatic trigger like Westpac Broking, and so many people may influence your
decision to continue on a downward path.

Happy Australia Day!