Ask Colin

What you do if you miss a sell stop signal and by the time you pick it up the share has moved up out of danger?

Your question is a good one. However, you should not be asking what I do. You should be telling me what your investment plan is and asking me what I think you should do.

 

Nevertheless, let me answer what you asked first. I check the market every day after it closes. If my sell-stop has been violated I sell next day. If I could not track the market for some reason, I would sell as soon as I saw the signal. Usually I have someone watch my sell-stops when I can't do it myself, say because I am travelling.

 

The reason I do this is because I invest into uptrends. My stops are below the last trough in the trend. That is where I am wrong about my investment. So I sell if the stop is violated. If the sale is at a price above the stop, it does not matter - the trend is no longer there, so I am wrong about the investment and I get out.

 

Next, I will consider what you should have asked me. That is what I think you should do. You should act on the logic of your investment plan. If you buy something it should be on the basis of what you think will happen based on one of the many models of how the markets operate. Your investment plan should therefore be able to define the price level, which if reached, indicates that you are wrong about your trade. If that happens you sell.

 

However, it is possible that some investment plans could call for you to hold if the price rises back above your stop by the time you see the violation. In the logic of my investment plan, there is no justification to hold. In others, there might be.

 

In order for me to express a more specific opinion, you will have to send me your investment plan - preferably in a form similar to mine as described in my book Building Wealth in the Stock Market.

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