How do retail investors decide whether to cover their positions or stop losses?
There are two views
in the market on whether to stop loss. Due to different investment starting
points and different perspectives, the views are also very different. One view
is that stop loss is a sharp tool to reduce the further expansion of book
losses and avoid deep lock-in, and it is a heroic act of a strong man cutting
off his arm. The other view is that stop loss is actually a loss, which is a
foolish act of selling your own stocks to the dealer at a relatively low price.
These two views represent different market views and different operating
styles. Even when encountering stocks being locked, the response strategies
adopted are completely different. One will adopt a stop loss strategy , and the
other will adopt a stock holding strategy.
After investors buy
stocks and are trapped, the first problem they face is to choose between
selling or keeping them, that is, between stopping losses and holding on to
their stocks. The following criteria can be used as a reference for specific
choices:
1. Distinguish
whether the buying behaviour that caused the lock-in is speculative buying or
investment buying. Investors who select stocks based on the fundamentals of
listed companies and from the perspective of investment value can learn from
Buffett's investment philosophy and do not need to worry about the temporary
ups and downs of stock prices.
2. Identify whether
the purchase is a bottom-scooping purchase or a rising purchase. If it is a
rising purchase, once you find a misjudgment, you must decisively stop the
loss. If you don't have this determination, you can't participate in the rising
purchase.
3. Distinguish
whether this speculation is a short-term operation or a medium- to long-term
operation. The biggest failure of short-term operation is not the profit or
loss at a certain time, but because of a small mistake, the short-term
operation becomes a medium-term operation, or even a long-term operation.
People who do not know how to stop loss are not suitable for short-term
operation, and will never become a short-term expert.
4. Recognize whether
you are a conservative investor or an aggressive investor. You need to
recognize your own operating style and skills. For example, some investors have
enough time to watch the market and have a sense of the market. They can reduce
the cost of being locked in by using the intraday "T 0" or short
selling in the short term.
5. Distinguish
whether the market index is at a high or low level when buying. When the market
index is high, especially when there are many profitable orders in the market,
investors are complacent and boastful, you should consider stop loss.
6. Distinguish the
size of the future decline of the market and individual stocks . If there is a
large decline in the future, you must resolutely stop the loss, especially for
some stocks that were relatively popular in the early stage and had huge gains.
7. Distinguish
whether the main force is washing the market or selling . If it is the main
force selling , you must resolutely and thoroughly stop the loss. But remember:
the main force selling may not be at a high level, and the main force washing
the market may not be at a low level.
What are the stocks
that can be covered?
First, it contains a
huge number of large and small non-tradable stocks. Even the banker has run
away, so the chance of losing more and more is quite high.
Second, strategic
investors with a strong desire to cash out are allocated shares, which simply
means they take the money and run away.
Third, varieties with
high prices and suppressed by national industrial policies.
Fourth, if you have
stocks that have lost their momentum and the main market makers have completely
withdrawn from them, you must exchange them instead of blindly adding to your
position.
In the future
rebound, there will be many stocks that cannot return to their previous highs,
which must be vigilant. In short, the stocks to be covered must belong to the
following two types:
First, when
short-term technical indicators are fully adjusted, such as KDJ, etc., which
have completely bottomed out and formed an effective reversal technical
pattern, it is a good time to gradually recover or cover short positions.
Second, stocks with
obvious market maker actions and intact medium- and long-term trends.
Obviously, the
overall trend of the market is not good, but many stocks in the two cities are
still in a relatively healthy upward channel. They will stop falling when they
adjust to the annual line. Any patient and careful investor can easily copy the
bottom of the band smoothly in the area of
the annual line. Once it enters the previous high point area, it is
necessary to resolutely sell it, and wait patiently for the stock price to fall
back in the rest of the time.
Covering a position
is an important way for those who are heavily trapped to save themselves. They
should strive to make clear judgments and avoid mistakes, otherwise they will
suffer greater losses. The types of stocks to be covered should adhere to the
principle of "covering the strong and not the weak, covering the small and
not the big, covering the new and not the old". The meaning is that in any
rebound or rise, the biggest opportunity belongs to the strong stocks , and the
funds for covering a position must not be used to buy unpopular stocks, weak
stocks, and stagnant stocks that appear in the shape of a straight line on the
technical chart.
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