[isatrader]

Weinstein emphasizes the necessity of placing protective stops. How effective are these at taking you out of a stock at or near the stop, especially when it comes to volatile small caps and micro caps that are priced in the single digits and, therefore, not very liquid? An example is AVXL's chart back in early November of 2015 when it tanked hard and fast from $15 down to below $3. Could a sell stop have gotten you out of that crash at, or near, the level of the stop? AVXL had 40 million outstanding shares and a market cap of $600 million at $15

I've come across some slippage many times in the past when dealing with illiquid stocks. So I do think it's important to only trade stocks with good liquidity, to help lower that risk, and it also lowers your cost, as the spread is smaller in stocks with good liquidity. So if a stock is fairly illiquid then it may gap past your stop loss a bit and get you out at a lower price than you'd like.

But I think in the example that you've used there was a period of days to get out before the major collapse without needed to wait for the stop loss, as there was a very heavy volume down day on the 5 Nov 2015 that pulled the stock back from the parabolic new highs to around $11. Which is a major warning sign in Stage Analysis, as a pullback should be on contracting volume, not expanding. And after a parabolic 1000%+ move in only half a year you need to get more aggressive with your exit strategy and look at taking profits into the strength, and be looking for signs that it's not behaving as it should, as anytime a stock falls 18% in a day like this did on that day you'd want to be exiting, and moving on.

Stop losses are needed, but there is normally other signs in the stock well before you get anywhere near them when it's in a Stage 2 advance. So you need to learn to spot the signs of bad behaviour in a stock that you hold, so that you can take appropriate action. Always remember about the "Opportunity Cost", and don't be afraid to take a good profit when it presents itself if you've gotten very extended above your stop loss, or a stock is trading well out of it's normal range.