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What Monday's trading indicates to me is two things: 1) the markets self correct much better than they used to. I think this is a positive and 2) that stop o
by chollida1 11y ago
What Monday's trading indicates to me is two things:
1) the markets self correct much better than they used to. I think this is a positive and
2) that stop order should almost never be used. During the crash of 1987 stop orders were just coming into vogue as a sort of protection. The ides with them is that they are sell or buy orders that are in the money but not entered onto the CLOB(Continuous limit order book). Once the stock falls below their strike price, they spring into action and become orders to sell (or buy if you are stopping for short protection).
This has a downside of extending slides when markets go down because as markets fall stops get hit which adds to the selling which means more stops get hit, rinse and repeat.
Unfortunately this means that in a flash crash you'll get stopped out of your position and when the market recovers you'll wonder where your shares went.
Stop orders, just say no. Even if you are watching the markets, you'll be too slow to cancel them.
- jrockway 11y agoHave to agree here. You hear people say "buy low, sell high" all the time, but they never seem to do this with the stock market. They sell low because the ultra-short-term trend is downward, and then buy high "because the stock market looks solid now". Then they lose a ton of money and wonder why. I dump a few thousand dollars into a total stock market index fund every few months. Monday was a non-event for me. I didn't even look at my positions. The stock market is for long-term goals, not intraday interaction.
- lbaskin 11y agoI generally agree, but Monday didn't have to be a complete non-event. If the market has just gone down sharply, that looks like a buying opportunity to me - even if it continues to decline for some time afterwards.
- jrockway 11y agoExactly. I was hoping for a downturn so I could invest more in the stock market. But sadly there was no downturn.