Ask Colin

If your stop-loss or protect profit stop is hit during a day, but the market closes above your stop, do you still sell the next day?

In general terms, which means nearly all the time, yes.

The reason for this is simple: My market model is to trade an uptrend. An uptrend is formed by peaks (daily highs) and troughs (daily lows). If a stop is set below the last trough in the trend, and the low of a day hits the stop, then the trend is no longer intact.

Murphy's Law suggests that the exit price is usually below the stop (slippage is against me), but sometimes I get lucky and the exit is above the stop as you suggest (slippage is in my favour).

Remember that I will consider getting back into the position if the trend reasserts itself. The trend reasserts itself it it moves above the highest peak in the trend.

There are only two situations in which I would not sell the next day:

1. If the price closed at a new high for the trend - extremely rare.

2. If there was a takeover offer (which may or may not be why situation 1. occurred). A takeover offer will often provide an effective put option under the price. It also introduces a completely different scenario, such as a competitive bidding situation, and really takes us outside of the usual investment plan.