FoundingFathers
03-25-2003, 12:28 AM
Setting stop losses on PM stocks has been attacked by many "loyal gold bugs" and gold posters - mostly on another site.
The fear is that the market makers and traders will "run you out of your position" so that they can then snatch up your shares. I have no doubt that this sometimes occurs - but I believe the bigger danger lies in not setting a disciplined stop point - a sector or stock that exhibits a high amount of disciplined stop orders is much less appealing to the dreaded "short trade". Professional traders look for any edge they can get - they use the loyalty of gold bugs much to their advantage - if they know that the average gold stock investor has a totally open postion with no risk management in the form of stop orders - a professional trader will wait for the appropriate signal and pounce.
At first glance this strategy doesn't make sense - until you realize that many of the so called strong handed gold bugs will reach a point of selling - not out of a disciplined technical stop loss point - but out of fear and confusion. We are now witnessing this. The traders know this are are watching for a big surge in small lot, market sell orders on a down PM day for the first whiff of a signal to cover.
The best defense is either to take delivery of your shares - especially if you really are a committed long term holder - OR enter logical stop losses on all of your PM positions - If the gold shares show a large percentage of stop orders - a short seller knows that his upside is limited - and knows that the PM gold bug investor taken out will likely look to buy on weakness rather than sell into it. Alway remember that this is all a big game - the game for us is to make profits to accumulate physical gold and silver. It's tough making profits when your opposition knows your weaknesses and fully exploits them without your knowlege.
CAVEAT EMPTOR
The fear is that the market makers and traders will "run you out of your position" so that they can then snatch up your shares. I have no doubt that this sometimes occurs - but I believe the bigger danger lies in not setting a disciplined stop point - a sector or stock that exhibits a high amount of disciplined stop orders is much less appealing to the dreaded "short trade". Professional traders look for any edge they can get - they use the loyalty of gold bugs much to their advantage - if they know that the average gold stock investor has a totally open postion with no risk management in the form of stop orders - a professional trader will wait for the appropriate signal and pounce.
At first glance this strategy doesn't make sense - until you realize that many of the so called strong handed gold bugs will reach a point of selling - not out of a disciplined technical stop loss point - but out of fear and confusion. We are now witnessing this. The traders know this are are watching for a big surge in small lot, market sell orders on a down PM day for the first whiff of a signal to cover.
The best defense is either to take delivery of your shares - especially if you really are a committed long term holder - OR enter logical stop losses on all of your PM positions - If the gold shares show a large percentage of stop orders - a short seller knows that his upside is limited - and knows that the PM gold bug investor taken out will likely look to buy on weakness rather than sell into it. Alway remember that this is all a big game - the game for us is to make profits to accumulate physical gold and silver. It's tough making profits when your opposition knows your weaknesses and fully exploits them without your knowlege.
CAVEAT EMPTOR