When To Get Back In The Market After A Stop Loss

Well, in the week ending May 18th, 2012 ALL of my stop loss orders hit. This means that my entire inMessment Game Portfolio is now in cash. Now what am I going to do?

Back in February I posted on trying to keep momentum with stop loss orders. A stop loss is a type of sell order that only sells if the price drops below a level you choose.

I had set fairly loose stop loss orders on all the holdings in my account. When the market went down for 12 days in a row, they all hit their limits on May 17th and 18th.

My portfolio value went from a high near $27,400 at the end of April to it’s current low of $24,725. I went from ranking #1 to ranking #9 in the inMessment Game.

In the game stop loss orders have a higher commission. They are $14.99 per trade. Since all 7 of my holding sold the commissions cost me $104.93. That hurts!

I have kept track of the securities since the stop losses hit and, so far, it has been a good thing. The market has continued down. Even factoring in the commissions for the sales, and for the buys when I get back in, the stops have saved me $125 in additional losses.

The problem now is when to get back in. If I get back in too soon, I will lose more. If I wait too long, I will miss the rebound.

At this point I am looking at waiting till at least Tuesday, May 22. The only reason for that date is that is three working days after the stops hit on the 17th. In my real IRA account with Fidelity, sell orders take three days to clear. Fidelity will still let me buy again right away after a sell but I cannot sell again until the original sell clears.

So, while the inMessment game does not have this same three day restriction, I like to keep my actions as close to what I would do with real money as I can. Waiting till Tuesday is a good discipline for me. My hope is the market will not rebound on Monday.

The Stockcastic Indicators say that the market is now oversold. This typically indicates a good time to buy. Several of the old holdings are not below their 200 day moving average. These indicators make me want to get back in sooner rather than later.

1-Year Chart for RSP: Green line show the 200-day moving average. The graph at the bottom shows the Stockcastic Indicators.

But those are more short term indicators. I do not know where the long term trend is going at this point. If Greece drops out of the EURO, what will that do to the markets? These are things that make me want to hold in cash longer.

I will decide later this week.

Since my entire portfolio liquidated I have also taken the time to reevaluate my holdings and work on the asset allocation. I will likely replace my iShares REIT IYR holding with Vanguards REIT VNQ. The Vanguard REIT has a good track record and has a lower expense ratio.

I am also thinking about adding a bond position to my portfolio. I have stayed away from bonds because I was younger and wanted to take the supposed extra risk with stocks make higher returns. Two things have changed my mind in this:

  1. I turned 40 this January
  2. PIMCO released their Total Return bond fund as an ETF

I have had the PIMCO Total Return mutual fund in my 401(k) for many years and it has always performed well. Now I can add that as an ETF in my inMessment Game Portfolio. And they got a great ticker for the ETF, BOND.

Let me know what you think. Do you think now is the time to get in the market or should you be in cash?

This and other articles on this blog are for entertainment purposes. I am doing the best I can but I am still very much in a learning process. These posts are an effort to share this learning process only and should not be considered financial advice.

Comments are closed.

Follow inMessment
Subscribe to get posts by Email:

We keep your address private: Privacy Policy

Search The inMessment Site