Trading while investing - use of stops

[leegs]

I am convinced that investing in oil is a winner for the medium term. I am ( I think) sufficiently convinced that I can avoid worrying about / reacting to short term price changes.

I have purchased $10k and $20k blocks of various oil etfs (DBO, OIL, USL, etc). So far so good. I also got the bright idea to play around with UCO (a double long), but have finally grasped the problems with the multiple and inverse ETFs for any thing but day trading so have sworn those off.

I got another bright idea, to set up trailing stops for the regular ETFs. I have been stopped out several times, and then bought right back in immediately. This worked out pretty well once, and not so well another time.

Some other background:
-I am absolutely not qualified to be, nor particularly interested in being, a trader.
-The funds I am 'playing with' are in a self-directed IRA, so there is no meaningful distinction between short-term and long-term gains (as far as I understand).

So my question - given my thesis and my commitment to it, and the other background info, is there any reason to use stops, and if so, what kind.

Thanks in advance for any feedback.

[Chris]

Re: Trading while investing - use of stops

So my question - given my thesis and my commitment to it, and the other background info, is there any reason to use stops, and if so, what kind.

General advice - If you are willing to lose most or all your capital then forget using a stop but if you're not then stops are a must.

I can't answer you're question directly because everyone's risk tolerance is different but I would ask why you want to jump in right now if you say that you don't want trade oil? It seems the risk involved in losing capital each time you get stopped out are far too high with you're current stop level. Perhaps waiting until the right opportunity for entering arises would be more prudent?

Brent (June contract) is currently around $49.60 and it looks like there is as much chance of it re-testing $40 in the next few weeks as there is of it blasting skyward to $60.

[*T*]

Re: Trading while investing - use of stops

Leverage requires stops. Unleveraged positions may or may not benefit.
Also I would say that leverage and stops are more suited to shorter-term trading. For long term positions scale in and out and try to get an average price over a period of time. Then you won't be so subject to short term price variations.

[Prazak]

Re: Trading while investing - use of stops

Leverage requires stops. Unleveraged positions may or may not benefit.
Also I would say that leverage and stops are more suited to shorter-term trading. For long term positions scale in and out and try to get an average price over a period of time. Then you won't be so subject to short term price variations.

Then again, plenty of long-term investors took a 50% haircut in a very short time just this past autumn, and I wouldn't be surprised to see the market break sharply downward again in the coming months -- or to break up sharply. Lots of uncertainty out there. In my view stops are prudent long or short-term, leveraged or not, tax qualified or not, provided that they are set to accommodate one's risk preferences: not so tight that one is stopped out by short-term fluctuations, but tight enough to exit a severe downdraft.

[jpatter666]

Re: Trading while investing - use of stops

But in this market with such extreme volatility, that's what has been killing me. I've been stopped out and then things fly back up.

Sigh....d*mned if you do, d*mned if you don't.

[leegs]

Re: Trading while investing - use of stops

But in this market with such extreme volatility, that's what has been killing me. I've been stopped out and then things fly back up.

Sigh....d*mned if you do, d*mned if you don't.

That was my most recent experience, using 10% trailing stops.

*T* - certainly the advice to use stops with any kind of leverage makes sense, and I will follow it if I do that again.

Chris - when I said I wasn't a trader, I meant in the sense of having a system or 'feel' for picking and acting on short term entry and exit points. I do want to 'invest in' oil, based on my premise that it is likely to at least double within the next two years at the latest.

If oil drops to $40 or $30 in the short term, I don't see that I will change my thesis. If stops would serve to exit a trade at 40 on the way down from 50 to 30, allowing one to buy back in at 35 or 45 , that would be great. But it seems as likely that if for example one used a 20% stop, it would drop to 40 just long enough to trigger the stop, then bounce back up.

I'm not sure what I will do going forward. I am not convinced that wider stops are the answer for my thesis.

Thanks to all for the responses.

[metalman]

Re: Trading while investing - use of stops

no money trading a bear market. in a bull market trading only appears to make money. everything's going up... in a bear market most everything goes down. most trades lose.

why the bull market trading geniuses here stymied since the debt deflation bear in dec. 2007???

it's just that simple.

sorry to be harsh but it's... the fact.

[karim0028]

Re: Trading while investing - use of stops

no money trading a bear market. in a bull market trading only appears to make money. everything's going up... in a bear market most everything goes down. most trades lose.

why the bull market trading geniuses here stymied since the debt deflation bear in dec. 2007???

it's just that simple.

sorry to be harsh but it's... the fact.

You can always go short..... You will almost always lose going long in a bear market

[*T*]

Re: Trading while investing - use of stops

Then again, plenty of long-term investors took a 50% haircut in a very short time just this past autumn, and I wouldn't be surprised to see the market break sharply downward again in the coming months -- or to break up sharply. Lots of uncertainty out there. In my view stops are prudent long or short-term, leveraged or not, tax qualified or not, provided that they are set to accommodate one's risk preferences: not so tight that one is stopped out by short-term fluctuations, but tight enough to exit a severe downdraft.

Then their position was too large. You want the bulk of your position to be in what you consider low-risk assets. Stocks were never that. That said, I am not arguing against stops, just saying they are necessary for leveraged positions.