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Four Stocks Hit Stop Losses. What Next? - Views on News from Equitymaster
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Four Stocks Hit Stop Losses. What Next?
Sep 27, 2017

Rural Electrification Corporation Ltd (REC), one of the recommendations under Profit Velocity, is down around 19% since recommendation.

As you may guess, it's the latest casualty of the stop loss limit we have in Profit Velocity.

As per the rules of the service, if a stock falls more than 15-20% from the recommended price, it must be moved out of the portfolio, no questions asked.

We had recommended REC at Rs 187 and at today's closing price of Rs 152, the overall loss on the stock works out to be around 19%.

Since the stock of REC has hit the stop loss limit, we now recommend a SELL on the stock.

It is by the above process we ensure that we sell our losers fast and limit our downside.

And Then There's the Trailing Stop Loss

But that's not all there is to it.

For stocks that go higher after we recommend, we have implemented what we call is a trailing stop loss strategy. With a trailing stop loss, we raise our selling price every time the stock goes higher.

Say one buys a stock at Rs 100 per share and sets the trailing stop at 20%. If the stock rises to Rs 160 per share, one would sell on a decline back to Rs 128 (20% of Rs 160 is Rs 32. One subtracts that Rs 32 from the 160 high to determine a Rs 128 stop price).

We keep almost all our trailing stops at 15%-20% of the high price reached.

As of today's closing prices, we have three such stocks in our portfolio. These are Visaka Industries Ltd, Indian Metals & Ferro Alloys Ltd (IMFA), and Indian Hume Pipe Ltd.

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