Jun 18, 2017
The market historically does get more volatile in the summer due to lower trading volume, but it doesn’t necessarily mean we need to change our risk management strategy. I will rarely place a hard stop with a broker on a longer-term holding stock because weathering the swings is part of investing. Plus, I’d prefer to watch my holdings on a daily basis. A hard stop-loss can often cause you to sell out of a position at a low point and miss out on a near-term rebound. Instead, I utilize critical support levels (key levels on a chart, such as moving averages or previous areas of price support) to monitor the action and determine if a change needs made.
That’s not to say I don’t ever use hard stops. In fact, they can sometimes be helpful in protecting gains. But by a strategic use of both hard stops and critical support levels, we have the flexibility to treat each position individually, which is a better way to invest than getting locked in by blanket rules that could limit our profits – even in the more volatile summer months.
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