Classic buy, and the reason we use stop loss !

I keep watching this particular stock because it was recommended to me by a friend at work and because of his high expectation. I remember saying to him that if I was going to buy this stock that I would wait for a breakout around the last pause, hint between the yellow dashed lines and the red, and I would then buy more. I also remember telling him that I would place a stop loss of some kind to protect my profits.

I never bought the stock for reason I do not remember, but it had a nice break out and run to $9.94. Then almost as suddenly as it rose, it came crashing down in one day 16%. If you use a stop loss with a dollar amount or % trailing, it will move with stock price. So even if you were using what I call the maximum stop loss of 15%, you would have locked in a price $8.45.

Your second warning to sell was the major volume for two more days that took the price lower. Then the down trend set itself in place and all the volume was gone. All warning signs that it should have been sold to lock profits.

The single largest mistake we can make as investors is to add to our position while the stock is going down. We add to winners and never to losers. Yesterday and today was the final insult to our pain, we now broke through break out support point and anything below this puts us in the hole.

The only way I would ever put money into this stock is if it broke out or reversed course with above average volume. To chase a stock down hill on news, rumor, or a belief that something is going to happen is a mistake. Buying a stock that is in a trend of increasing volume and price is something you can see and should be bought. Price, supply and demand, and volume is the only thing that puts money in your pocket. Not news, not rumors, not hope, but price going up or down if you are playing the short.

Last little tidbit that I want to throw out there. Even if your in love with your stock, which you should never do, you would still be better off selling the stock and watching for a re-entry later. That way you keep your profits, put your money to work in something else while your first love consolidates or just falls to the pits of hell. But never ride it down and give everything back. That is a waste of time, money, and nerves.