Importance of Keeping Your Losses In Check



One of the very first lessons I learned as a trader was to keep my losses in check regardless of the market environment.  It's easy to become complacent with your exit strategy when the market is trending well with little volatility, but if you choose to ignore your stops when they are violated then eventually you're going to have a major drawdown.  During this last week, CELG was used as an example by many to illustrate the importance of using initial or trailing stops to protect capital and manage downside risk.  CELG was actually a long position for the Trade Anatomy portfolio with an initial entry date on 9/11 at 140.86.    On 10/13, CELG closed below its trailing stop, violating its trend.  On 10/16 it was closed out at 136.61 for a small loss and had a -.23% effect on the total portfolio value.  If I had ignored the stop and allowed the position to stay, the current loss to the overall portfolio would be -2.46%.  Always take your stops seriously and practice good risk management regardless of the current market environment.  


Position Summary

+26.70% YTD

Open Positions

5 long


29 candidates


Earlier in the week, several of the bigger positions such as ICHR, UCTT, AMAT, and YY, were removed for gains.  All four of these stocks had been displaying the alert indicator (orange triangle) over several days.  These generally indicate that a stock is ready to consolidate or possibly correct for a short period of time. I use them to either exit a position completely or tighten the trailing stop.  In this instance, the positions were removed.  In total these four positions contributed about 5.5% to the overall return for the year.  Several other positions which were struggling to move out were also removed this week. That leaves the portfolio with 5 long positions.

Watchlist Summary

As of today, 320 stocks are passing the main screen.  There's been very little movement up or down with the list these past few weeks.  However, as companies report earnings, new candidates are starting to emerge from the stock screens.  Click to enlarge the charts.  

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