Frequently Asked Questions
Q: What do you advise for use as a stop loss guide for buying pocket pivots? Lots of times your email might include some advice like 'use the 10 day average as a stop guide', but how does this fit with your 10 day / 50 day moving average technique for selling a stock (I presume this technique is for selling a position once it is profitable?), and how does it fit with a max 7-8% loss that one should always keep to. When should I give the stock some room down to my 7/8% loss rather than selling it upon a 10 day average violation?
A: Most investors use a 7-8% maximum stop loss. Always adhere to that first. If the stock violates the 10dma before it gets to that level, it depends on a number of factors as to whether you decide to keep your position or sell it. Such factors include the strength of the general market and the quality of the stock. On the other hand, if you are showing a profit and the stock violates its 10dma in 7 weeks or less, you should switch to using a violation of the 50dma as your selling guide. If the stock does not violate its 10dma for at least 7 weeks, then you can use a violation of its 10dma as your sell point.