Posted by lae2 on December 11, 2008 at 14:10:20:
You may find that volatility paired with tight stops leads to churning your account. Rather than using tight stops, try building your portfolio with a balance of stocks that do not always correlate. For example, my portfolio is heavily biased toward energy, mining, and metals. There is also a spattering of retail and financial stocks.
For my portfolio, the commodities and the financial stocks disconnect on days where the market lacks direction. They may also disconnect on days when the market heavily favors a sector. I take note the stocks that negatively correlate (or less positively correlate) and adjust the balance. I temper the balance with prevailing market conditions that may hold a sector in disfavor.
Balancing holdings that negatively correlate is a way of hedging without having to go short. Hedging in this manner may allow for loosening up the stops. You can then extend your time frame and stop getting whipped to death.