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Old May 8th, 2006, 02:36 PM   #1
TimothyMoulder
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100% completely OT - Trailing stops

I thought I'd mention this errant thought since we have a number of fiscally-oriented people here.

The worst thing that can happen to a stock is a run on the bank - people panicking over something and cashing in their chips in huge numbers. The stock falls in value, which triggers more people to dump it, and so on.

However, in the "old days", the inconvenience of the times - banker's hours, limited ability to reach the broker, etc - tended to slow the damage a little, and help prevent out-and-out crashes of a particular stock. Companies had some room to react, release statementsm and otherwise perform damage control.

In the modern day-trading world, people use their Ameritrade accounts like credit lines at the casino. And they use a tool called a trailing stop to try and avoid losing money. Basically, ANY downturn in the stock (to a set amount, or any drop at all) triggers a computerized dump of the stock.

Now, even a small hiccup in a stock's performance can cause a major drop in it's stock value, since every penny it falls can trigger a computerised cascade of dumping and even further collapse.

This phenomenon has even caused the stock market to shut down on a couple of occasions, because the values of all kinds of stocks were in free-fall, and the only way to stop the dumping was to stop the market altogether.

So my question is this - are we getting a little TOO convenient? Is it really a good idea for the economy and society to let indiscriminate tools like trailing stops exist? Or if you pays your money and takes your chances, shouldn't you have to stand until the roulette wheel stops spinning?

TM
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Old May 8th, 2006, 03:51 PM   #2
marksji
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Quote:
Originally Posted by TimothyMoulder
shouldn't you have to stand until the roulette wheel stops spinning?
Tim, I only want to comment on this one thing right now, I need to ponder the rest of it for a while...

If I buy a stock how long should I have to hang on to it? You're comment about "stand until the roulette wheel stops" scares me a bit... When exactly does the roulette wheel stop? Are you saying that if I buy stock in a company I can't sell it and I have to wait for them to go bankrupt? If that's not what you're saying then how long do I have to wait after I buy stock before I sell it and who makes that decision?
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Old May 8th, 2006, 04:38 PM   #3
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The roulette wheel is a good analogy....

I'm not a day trader, but do invest. Just remember for every share sold, Somebody is buying it, and possably for a good reason, (maybe because they sold short last week and are taking their profits from your hide).
The thing is you can profit from a fall or from a rise.

IMO day trading is no different then the roulette wheel, but if you do your homework, long term investments is actual investing. So choose your game gentelmen....
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Old May 8th, 2006, 05:33 PM   #4
Terry Woods
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With respect to the masses, any Capitalist System depends on reasonable stability. In nature, the difference between high-tide and low-tide is reasonable and manageable. It has been so ever since it was recognized that they exist.

(Please allow a little poetic license...)
But then there is the developer-guy that insists on erecting a house on the beach, just a few yards from the water... at low-tide. He then hopes to sell that magnificent place for a profit. I wonder if he is even aware that the tide was out, and bound to come in?

Is that a risk-taker?

Well, to the extent that he is trying to make a profit, yeah, that's a risk-game. But overall, we know, when the tide comes back in... there's no question of risk involved in that at all... it's a loser, an absolute loser!

And then... after the house washes out to sea... the idiot developer (investor) wants the government (that would be... we the people), to absorb the loss.

And so... how could this whole situation have been avoided?

It's a matter of timing... if the guy had considered the time-issue he might have considered... tide-out... followed by tide-in... hmmm... where can I put my development money (build a house) that won't be "eroded" by short-term effects? At the very least, the idiot needs to build the place beyond the limits of the high-tide! (In this analogy high-tide is bad.)

And so, we have these things called Zoning Laws and Building Codes. These are laws imposed on the developers to keep them from doing stupid things and things that will end up costing the people.

So how does this apply to investors?

The issue is "time". If the developer had considered "time", his situation, and that situation relative to others, would have been more stable. He would have realized his profit without putting the general public at risk.

While I love the idea of these "Day Trader" services making it easier for joe-blow to get involved in stocks and bonds, I absolutely hate the idea that joe-blow could issue a buy-order one moment and then, as quickly as he could type in, issue a sell-order.

I've always believed that if someone is going to invest in a company they need to really be willing to put their a$$ on the line by committing to the investment for at least a one-year period! That should include public-shareholders as well as inhouse-shareholders.

I think that would go a long way to prevent a lot (certainly not all) of the insider-trading cr@p.

The basic concept of this country is not for the benefit of any individual. Although, any individual should certainly be allowed to get the gains that he can... without screwing the general public. The basic concept of this country, as stated by the Founding Fathers, is for the welfare of ALL!

For you buzz-word freaks, the "welfare" in "welfare of ALL" DOES NOT mean a "Welfare Program". Oh for Pete's sake... look it up! Definition-1 applies! And, by the way, "ALL" includes YOU!

My belief is, if you buy stock, then do so for the long term (at least a year), or don't do it at all!

Anybody that argues against that is nothing but a greedy ba$tard that doesn't care about the overall welfare of the country on the whole.
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Old May 8th, 2006, 05:43 PM   #5
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I have a question.

I have done some trading but recently have not done more than rearrange mutual funds.

The Question: Has trading changed when stock may be physically traded? In other words, the NYSE (New York Stock Exchange), is open from 9 a.m. to 3 p.m. EST (not sure that is precise but you get the idea). The actual trading regardless of how it is monitored will be done in that time period so it can not "drop" unless in that time frame.

You can trade from now to doomsday when market is closed but it should never affect the market closing price.

Stocks are gambling, especially day trading, as mentioned some people make money selling short.
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Old May 8th, 2006, 07:04 PM   #6
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Quote:
The basic concept of this country is not for the benefit of any individual. Although, any individual should certainly be allowed to get the gains that he can... without screwing the general public. The basic concept of this country, as stated by the Founding Fathers, is for the welfare of ALL!

For you buzz-word freaks, the "welfare" in "welfare of ALL" DOES NOT mean a "Welfare Program". Oh for Pete's sake... look it up! Definition-1 applies! And, by the way, "ALL" includes YOU!

My belief is, if you buy stock, then do so for the long term (at least a year), or don't do it at all!

Anybody that argues against that is nothing but a greedy ba$tard that doesn't care about the overall welfare of the country on the whole.
I would argue the point because as you said the basic concept is for the "welfare of ALL", not that ALL should be on welfare.

The idea was that each and every individual had an "EQUAL" chance to be what they desired to be, whether rich, educated, or just getting by.

We all know that "ALL" has not always included all people in the US.

We were founded on a Capitalist system, which means you have the ability to use your time, ideas, and/or money in any manner you please to make more money and/or accumulate wealth.

Today, meaning present time, we in the US have numerous tax and regulations upon us, why is it each day someone wants to either tax us more OR regulate how we use our hard earned money.

NOTE: Since I have no money, nor care that much about it, it would be difficult to call me a greedy anything.
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Old May 8th, 2006, 07:14 PM   #7
Peter Nachtwey
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Quote:
Originally Posted by TimothyMoulder
So my question is this - are we getting a little TOO convenient? Is it really a good idea for the economy and society to let indiscriminate tools like trailing stops exist? Or if you pays your money and takes your chances, shouldn't you have to stand until the roulette wheel stops spinning?

TM
Stop loss orders are vital and not used enough. There have been times when my stop loss order has saved me. I have been hurt when I have been in the field I didn't have a stop loss and my stock broker couldn't reach me. The idea of waiting till the wheel stops is crazy.

Mike has it right. The stock market is a zero sum game at best. Unfortunately there are trading fees and those #$%^ stock brokers that make the system more inefficient so the stock market is not quite a zero sum game. However, the trend toward electronic trading has helped efficiency.

BTW, don't trust stock brokers. If they knew what they were doing they would be doing it for themselves and they wouldn't need your money to do it.

Gambling. Everything is a gamble. One must minimize risk and maximize rewards in all endeavors. I don't sky dive or bungy jump.
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Old May 8th, 2006, 08:49 PM   #8
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Quote:
Originally Posted by Terry Woods
With respect to the masses, any Capitalist
My belief is, if you buy stock, then do so for the long term (at least a year), or don't do it at all!

Anybody that argues against that is nothing but a greedy ba$tard that doesn't care about the overall welfare of the country on the whole.
Well, I don't even know what to say to that. Where do people dream up stuff like this?

Why would anyone commit to an arbitrary time of one year? I mean, it's my money that I'm investing, and if I don't think a company is being responsible with it. then I'm pulling it out and investing in something else. That is only common sense. If a company wants me to leave my money where it is, then they will avoid CEO scandals, make sound investments in R&D, and come up with sound products.

Sure, technology allows people to "snip" the market easier than ever before, but it doesn't make someone un-American for doing it.
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Old May 8th, 2006, 10:28 PM   #9
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Quote:
Originally Posted by Terry Woods
I've always believed that if someone is going to invest in a company they need to really be willing to put their a$$ on the line by committing to the investment for at least a one-year period! That should include public-shareholders as well as inhouse-shareholders.
I both agree and disagree with you on this one...

Would the economy as a whole be better off if every person involved in any investment were in it for the long haul? You bet! At the same time if I invest my hard earned money in a company that has been very solid and then 2 weeks later they do something stupid shouldn't I be allowed an out if I'm no longer comfortable? After all it is MY money, no one else's, and certainly not the country's.

As for the 1 year term; the IRS defines short term investments as less than 1 year and long term investments as greater than 1 year. The tax rate is different for the two, very different. So in a way our government already imposes a control to encourage people to hang on to their investments for at least a year and yet since they've done it with tax rate and if your profit from the transaction is $0.00 or less then you pay no taxes they don't penalize you for stopping the bleeding.

As someone else already pointed out (I'm too lazy to go look through the posts again to give proper credit) the market is only open x hours per day and only 5 days per week and not on holidays. The market also has a built in, automatic, non-bypassable, limit to how much it can go down in a single day. If it exceeds that limit then trading stops at the moment the limit was exceeded and does not resume until the following regular market day.

I guess what I'm saying is we already have things in place to keep or limit the effects of a market collapse... be it cascading, reactionary, emotional, or completely rational in nature.
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Old May 9th, 2006, 09:34 AM   #10
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Quote:
Originally posted by S7Guy:
I mean, it's my money that I'm investing, and if I don't think a company is being responsible with it. then I'm pulling it out and investing in something else. That is only common sense. If a company wants me to leave my money where it is, then they will avoid CEO scandals, make sound investments in R&D, and come up with sound products.
That doesn't address the origianl point of the post. While Terry's point doesn't address the issue S7Guy brings up, it doesn't change the fact that S7Guy's evaluation is Utopian in it's own way. The value of the S&P 500 will change by a percentage point in a day just because the CEO of GE came back from the doctor with a case of jock itch. What does corporate performance or responsibility have to do with that? More than at any time in previous history the stock market is being driven purely by emotion as opposed to solid financial evaluation. Part of this is due to the introduction of huge sums of money by people (the general public) who have nothing but their gut to tell them how to invest it and nothing but Enron on the news to tell them when to be worried. People who would like to make logical decisions can't because they need to follow the tide or be drown.

Terry's analogy about building out of the reach of the tide is all fine and good until a hurricane comes along. Then that house is still going to get whacked. The problem today is we are seeing a hurricane every few weeks.

Is this good? No. Is this 'right'? Most likely not. Is this the way it is? Yes. If you don't like the new rules of the game, don't play. If you want to play you better get used to the new rules. They won't be changing back.

Keith
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Old May 9th, 2006, 11:42 AM   #11
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Keith, you are dead-on. The huge amounts of money rolling around in the market today are changing based purely on whim, and a collapse could be predicated by nothing more than the Internet and a reasonably credible rumor.

Where there is no logic to guide decisions, there must be regulation. Mark asked, "How long should I be forced to hang onto a losing stock?" I can't answer that question. The people here tend to be rational, thoughtful and make educated choices, and the responses reflect that. The day trader is doing this becuase it's cheaper and easier than buying lottery tickets.

When reason is lost, regulation is required - Terry's tide analogy comes into play here. The goal is to curb the day traders who are making the market so twitchy it can't even control it's own bladder anymore.

One way would be making a minimum holding rule. What's so scary about that? Most mutual funds have them already, and the norm is 6 months, or you lose some of your profits. Make this a standard regulation - buy twenty thousand shares of FlyByNite Tech, but pull out before 6 months, and lose 20% of all capital gains to the feds.

Alternatively, how about making some minimum qualifications to trade stock? A license and 6-week course is required. You can be denied if you show signs of gambling addiction. And most day traders wouldn't have the attention span to sit through it. This way, you avoid the financial losses of the first option if you pull out, but you have to show some willingness to educate yourself and invest your time to participate, not just a 401k and PC.

There are others. Mark mentioned a few that already exist, but none of these do anything to curb the "slot machine crowd". We need something specifically target these guys.

Peter - say you could only set a stop-loss order for a loss of 10% value from pervious day's closing. If you're in for a $1000, you stand to lose a $100. Painful, but would it prompt you to choose your investments more carefully?

Ron - the government has it's priorities reversed. They want to regulate citizens, not institutions. We spend millions to legislate about prayer in schools and gay marriage, but when Enron goes down like the Titanic, all they can do is shrug.

Republicans are the "party of personal responsiblity". Fine. Let me take responsibilty for my own affairs, and let them take responsibilty for the institutions on financial par with the government. Deregulation has undone everything Teddy Roosevelt fought for a hundred years ago, and we are nowhere near done regretting it.

TM


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Old May 9th, 2006, 12:01 PM   #12
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Quote:
Originally Posted by TimothyMoulder
One way would be making a minimum holding rule. What's so scary about that? Most mutual funds have them already, and the norm is 6 months, or you lose some of your profits. Make this a standard regulation - buy twenty thousand shares of FlyByNite Tech, but pull out before 6 months, and lose 20% of all capital gains to the feds.

Alternatively, how about making some minimum qualifications to trade stock? A license and 6-week course is required. You can be denied if you show signs of gambling addiction. And most day traders wouldn't have the attention span to sit through it. This way, you avoid the financial losses of the first option if you pull out, but you have to show some willingness to educate yourself and invest your time to participate, not just a 401k and PC.
So what if the IRS simply changes their rules on the tax rate difference between "long term" and "short term" investments? As I pointed out, the difference exists already; maybe we need to make the difference bigger...

As it is now to actually trade stocks you have to have a seat and seats don't come cheap or easy (not that I know all the ins and outs of it). Ameritrade, etc are acting as brokers for their customers, their customers don't actually buy or sell stocks, they buy and sell the rights to stocks... customers are technically buying and selling those rights to stocks to and from Ameritrade. If, using Ameritrade, I issue a sell order for 500 shares of XYZ corp Ameritrade may or may not actually go sell 500 shares of XYZ corp on the market. If they have another customer looking to buy 500 shares of XYZ corp for the price I'm selling then those stocks never hit the trading floor (though I believe they are counted in the volume figure for the market).

Yes the market does seem to react to non-rational things and that should probably be slowed to some degree, but how to do it and how much to do it are going to be where a lot of difference of opinion comes in...
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Old May 9th, 2006, 01:28 PM   #13
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Quote:
Originally Posted by Peter Nachtwey
Stop loss orders are vital and not used enough. There have been times when my stop loss order has saved me. I have been hurt when I have been in the field I didn't have a stop loss and my stock broker couldn't reach me. The idea of waiting till the wheel stops is crazy.
If they work and only if they work...I have had stop orders in and lost my a$$, they are not full proof and don't think for one min. that they are, if there is no one to by them you can loose...if you man on the floor is slow you can loose, etc..

Don't get me wrong I use them but, what you need to do is limit your loss (if you can)

I call the floor on the CME direct, but that still does not make me that fast and in the commodities, you can loose fast.

What you need to keep in mind (if you are not going to stay in long term)

Limit your loss
Limit your exposure(if day trading then be out by 3:00 pm)
Don't be greedy

Quote:
Originally Posted by TimothyMoulder
The worst thing that can happen to a stock is a run on the bank - people panicking over something and cashing in their chips in huge numbers. The stock falls in value, which triggers more people to dump it, and so on..
You stay, i'll go...I don't wish harm to anyone or wish them bad fortune but if you can't afford to loose it then you should not be in it anyway...
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Old May 9th, 2006, 06:41 PM   #14
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We has met the Enemy! And he is US! (Pogo! Damn, I miss him!)

We apparently measure our personal wealth in terms of "money".

Don't you know that the whole concept of "money" is nothing more than a human contrivance?

As such, the "RULES" behind the prosecution of that contrivance are... absolutely arbitrary!

Can you understand what that means???

The "RULES" are ARBITRARY! The "RULES" are made up!

And those "RULES" can change - at any time!

Just as quickly as the tax reductions came into to play (reductions that were only meaningful to those in the upper few-percent), they can be taken away... simply by changing the rules!

So the real question is... who the hell is in charge of determining the rules???

Well... does "We, the People..." strike a bell?

Each one of you has the opportunity to vote to place someone in office that can affect those rules. This voting stuff is a very, very serious responsibility!

Many people before us have paid a serious price, their lives, to provide this most sacred, and most powerful, right upon us.

That's right... "upon us." ... not "...for us." This "right" is a burden! A burden that ALL subsequent generations need to take very, very seriously!

One should consider, very carefully, the welfare of all, that is, the welfare of the Nation on the whole. Only then, after considering the Nation, that is, after considering society in general, which includes your neighbors, your parents, and your grand-parents, only then should you consider yourselves!

The name of the game, in this human-experiment is, DO THE RIGHT THING FOR YOUR GRAND-PARENTS, YOUR PARENTS, YOUR CHILDREN, AND YOUR GRAND-CHILDREN! (And their children's children as well!)

The "RULES" of the Market are Arbitrary!

Do you get what that means? We can't impose honesty... but we can impose limits on dishonesty and proportionally unfair load-sharing.

And by the way, today's Democratic Party is NOT the Democratic Party that existed in your Grand-Parent's time. Nor is today's Republican Party the Republican Party that existed in your Grand-Parent's time!

For God's Sake! Don't vote for a Party simply because... "that's what my Father, and my Grand-Father always did"!

How STUPID is that??? THINK!!!
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Old May 9th, 2006, 07:16 PM   #15
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Sometimes I have no idea where you are coming from, or where you are going. But it's fun reading none the less.
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