A Stop Loss Strategy

Opening Day on the New York Stock Exchange

In the past, I wrote a blog about buying Alibaba Group Holding Limited (BABA) on the New York Stock Exchange (NYSE), purchasing the stock at about $99.50 per share. I told you that at least one of my friends bought the stock at $90.00 per share. I also told you that the stock should be bought using a "In Favor/ Out of Favor" Strategy.  I think it is time to examine some Definitions.

 

DEFINITION of "In Favor/ Out of Favor"

 

An industry or stock to which many analysts and investors do not pay attentions to. Out-of-favor industries or stocks tend to have a low price-earnings ratio and may therefore be undervalued. That is, the low price does not necessarily come from a fundamental problem with the company, but may result simply from apathy on the part of investors.

 

Value investors sometimes seek out-of-favor industries and stocks for long-term investments.

 

In the case of BABA, the stock went on sell on the NYSE as an unknown company. Therefore, investors did not know the value but the financial media talked up the stock. Once the media interest fell away, the talking subsided and the price fell.

 

 

DEFINITION of 'Beta'

A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns.

Also known as "beta coefficient."

 

DEFINITION of 'Stop-Loss Order'

An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security.

 

Although most investors associate a stop-loss order only with a long position, it can also be used for a short position, in which case the security would be bought if it trades above a defined price.

 

A stop-loss order takes the emotion out of trading decisions and can be especially handy when one is on vacation or cannot watch his/her position. However, execution is not guaranteed, particularly in situations where trading in the stock is halted or gaps down (or up) in price. Also known as a “stop order” or “stop-market order.”

 

How Using A Stock Loss Strategy Can Make Money In BABA!

BABA has a high BATA and fluctuates in price wildly. The price range of this stock had a low of $82.81 and a high of $120.00. As the stock rose to $120.00 per share, I had to leave to train my grandson for his next track meet. I placed a "Stop-Loss" Order for all my friends accounts for their stock. I bought the stock for them at $99.50. I placed the "Stop Loss" order at $111.00. So if something happened to their BABA stock, they will still make about $11.50 per share or 11.56% on their investment.

 It only took 3 days for the stock to collapse, making the stock price fall below $111.00 that triggered the "Stop Loss" order. The stock today, Dec. 1, 2014 sells for $105.99.

From this, you can see how a "Stop Loss" order can save a profit from becoming a loss. In this case, the speculators made 11.56% in two weeks. As you can see, no investor can lose money by purchasing stock late and sell early.

 

http://finance.yahoo.com/echarts?s=BABA+Interactive#%7B%22range%22%3A%221mo%22%2C%22scale%22%3A%22linear%22%7D

Alibaba Group Holding Limited (BABA) Price History