Friday, April 9, 2010

How to trigger Stop Loss and still be happy?

Mr.Happy bought 100 shares of Happiness Unlimited at Rs.1000/- per share.

Total investment = Rs.100,000/-

He had done his homework thoroughly.

He was pretty sure that he had bought the stock at exhausted rsi lows.

He was sure that stock couldn't fall by more than 3 or 4 bucks from his purchase price.

So, Mr.Happy happily put the stop loss at 95.

After a few days, something rare happened.

Markets started slipping.

The price of Happiness Unlimited started to decline.

98.

96.8

95.3

95

Mrs.Happy (Mr.Happy's wife, ofcourse) ordered him not to trigger the stop loss of 95.

(Wives are always more intelligent and intuitive!)

"It will rebound." She explained.

"Then why have a stop loss?" Mr.Happy argued.

and without listening to her reply, he triggered the Stop Loss and exited.

Mrs.Happy became very unhappy!

"How dare you?"

"Being life partner, I was 50% partner in this trade as well! Why was not I consulted?" She shouted, hands on her waist!

Mr.Happy scented trouble.

But he gathered courage to explain

"Dear wifi! Something beyond our understanding is happening. There is a good chance of the price falling even further. It is does, we will get the golden gift opportunity to buy it at mouth watering price. We anyhow know it has the potential to reach 130 in 2-3 months.", he said.

"And what if it doesn't fall." Mrs.Happy challenged!

"We will buy it again. 95 will act as 'buy again' level for us, honey!"

Unexpectedly, Mrs.Happy saw the logic.

Truce was called.

Mr. & Mrs.Happy lived happily for ever after!

Never mind what happened to Happiness Unlimited's price.

You got the moral of the story.

"Never trade in front of wife. Just hand over the profit. Period"

So, don't worry, be Mr.Happy

Pull that (stop-loss) trigger!

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