Sophie's Choice - Stop Loss or Sell Limit

Hello readers!

I was faced with quite a dilemma this morning. To sell or not to sell? No, this wasn't it. Rather, the question was how to sell. This calls for a little background.

Going into the day, I held positions in PAL (entered at 4.30) which closed yesterday at 4.46 and SWC (entered at 12.62) which had closed north of 12.70. The trouble was, being occupied, I knew I would have no access to the market from 9 AM to 11:30 AM. I had seen enough of the pre-market to know we were going to have a down day, something that I was expecting in the near future anyway as indicated in the posts below and the poll to the right. So, I made up my mind that I was going to sell my position at the market open. The primary reason for this was that I was already up around 9% for the year (overall account) and I was ready to miss out on any potential gains in the hopes of getting out with a smaller loss. After the kind of run up we have had, capital preservation should be your primary strategy.

I always use a stop loss for taking losses, but I started considering the option of stop limit this morning. For those who do know, a stop loss would sell my stock at or below my specified price whereas a stop limit would sell my stock at or above the specified price.

My fear with a stop loss was that even an odd lot selling at a unreasonably low price, as it regularly happens in low volume stocks for the first order or two, or an overreaction to a potential down day would make me liquidate my positions and suffer large losses.

The disadvantage of a stop limit was what if the stock never reached my entered price and went on going down from there. Again, heavy losses!

The decision I made was to set a stop limit at a lower price (but higher than a ridiculously low price at which my stop loss could have been met). I had seen enough of the pre market to have an idea of the range that these stocks might be at in the few minutes. A stop limit at the lower end of the range would make my stock sell at a higher price if the market opened in that range.

So, I decided to go ahead with the stop limit.

I got out of PAL at 4.35 for a 1.16% gain and out of SWC at 12.59 for 0.2% loss.
PAL recently touched 4.20 and SWC 12.00. I guess all's well that ends well.

I hope this helps some of you in case you are ever faced with a similar choice. Remember to go with the stop limit at market open only if you are confident of the opening range of the stock and set it at the lower end of the range.

Good Luck trading! I will be back later in the day with a daily review. Hope none of you got hurt too badly today.