Stop Loss and ETFs

[tqa1102]

Hello

Just looking for some advice if anyone has used a stop loss strategy with ETFS. I currently invest in VOO VXF VXUS and BND. Is it a good idea, what price do you set the stop loss?

Thoughts?

[carminered2019]

Hello

Just looking for some advice if anyone has used a stop loss strategy with ETFS. I currently invest in VOO VXF VXUS and BND. Is it a good idea, what price do you set the stop loss?

Thoughts?

Think of March 2020, a stop loss would have left you way behind so the answer is NO unless you are a day trader.

[muffins14]

I don’t understand why someone would do this. Can you explain your reasoning?

[steadyosmosis]

Hello

Just looking for some advice if anyone has used a stop loss strategy with ETFS. I currently invest in VOO VXF VXUS and BND. Is it a good idea, what price do you set the stop loss?

Thoughts?

I have occasionally used a stop-loss order.
I set it for the amount at which I desired to stop losing money on that holding.

[nisiprius]

Stop-loss orders aren't a magic way to eliminate the downside risk of the stock market.

It's not a "prevent-loss" order. It stops a further loss, which sounds like a good thing, but it has the cost of locking in the small loss you have already incurred. There's no law of physics that says which way the stock will move next. If it moves down, you have prevented a further loss, but if it moves up you have prevented a recovery.

No matter where you set the level it won't be right. If you set it high, you will frequently sell too soon and pile up lots of small losses. If you set it low, it will fail to trip when you would have wanted it to.

It's not a surefire way to cut risk and boost return, it is a way of making a slightly more complicated bet on your opinion of what the ETF is about to do. You are betting that if the stock moves down at least X%, it will drop much farther.

So my opinion would be "not a good idea."

[tqa1102]

My thinking that in this current volatile cycle that a stop loss strategy might make sense. Take advantage of the recent run up of the market and hedge the potential downside if we come close to retesting the lows due to poor earnings across the market. Inflation needs to work it’s way through the economy.

[enad]

I have used it but not to lock in a loss, rather to prevent a loss

[livesoft]

Not a good idea.

Perhaps a better idea would be to have an alert sent to your phone or e-mail account when the ETF reached a price that you set for the alert. THEN you can use your brain to decide what to do next instead of having someone take advantage of you.

I use such alerts to make me go look and see if I want to buy more shares. I would exchange from another ETF to get the money to do the purchase. Examples:

a. Sell BND and buy VTI.
-or-
b. Sell VTI and buy BND.

I give these examples so that readers don't ask me where I get the money to buy shares.

[tqa1102]

Got it. What % of the current value do you set the stop loss target price.

[Nate79]

So you want to be a market timer?

[grabiner]

Stop-loss orders aren't a magic way to eliminate the downside risk of the stock market.

It's not a "prevent-loss" order. It stops a further loss, which sounds like a good thing, but it has the cost of locking in the small loss you have already incurred. There's no law of physics that says which way the stock will move next. If it moves down, you have prevented a further loss, but if it moves up you have prevented a recovery.

It doesn't even prevent a further loss unless you sell and never get back in. If you buy a stock at $100 per share, and it drops to $80, you have a 20% loss. If you don't sell, the market could drop by another 20%, giving you a 36% loss. If you do sell, the market could drop by 20% just after you get back in, giving you the same 36% loss.

[muffins14]

My thinking that in this current volatile cycle that a stop loss strategy might make sense. Take advantage of the recent run up of the market and hedge the potential downside if we come close to retesting the lows due to poor earnings across the market. Inflation needs to work it’s way through the economy.

How will you know the right time to re-enter the market? After it has recovered to the level where you stopped the loss?

[jjj_22]

My thinking that in this current volatile cycle that a stop loss strategy might make sense. Take advantage of the recent run up of the market and hedge the potential downside if we come close to retesting the lows due to poor earnings across the market. Inflation needs to work it’s way through the economy.

So say the order fills, when do you buy back in?

[Marseille07]

Got it. What % of the current value do you set the stop loss target price.

It's up to you. How much losses can you tolerate? Also, as others are saying, you need to consider the re-entry point unless you just want to get out and stop investing.

[gtrplayer]

Stop losses have almost invariably led to me missing out on gains. Order goes through, stock rises, get back in, stock drops again, now you’ve lost twice… repeat until you get frustrated enough to stop.

[UpperNwGuy]

Just looking for some advice if anyone has used a stop loss strategy with ETFS. I currently invest in VOO VXF VXUS and BND. Is it a good idea, what price do you set the stop loss?

I have never used a stop loss strategy. I think it's a bad idea. I don't think you should use such a strategy either.

[Silverado]

Not a good idea.

Perhaps a better idea would be to have an alert sent to your phone or e-mail account when the ETF reached a price that you set for the alert.

Good first step. Second step(for the OP) is turn off notifications and set a filter so one does not see the email.

[tqa1102]

Ok clear. Thanks for the input from everyone.