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I understand from time to time, a position will take a huge loss.
Perhaps something happens after-hours and the stock opens 15% lower,
well below the stop. One way to avoid this is to not hold over
earnings. But a plunge can still happen for reasons unrelated to
earnings.
I have found very little in the money management literature on this
subject, so can a few of the experienced traders please provide some
guidance:
1) How often has this kind of catastrophic loss happened to you?
2) Are there cost-effective and practical ways to protect against it?
(eg. buying put protection for long stock that is held for a few days
is not practical).
3) How have such losses affected the long term return of your portfolio?
4) When these catastrophic losses happen, is it isolated to one
position or does it affect all your open positions?
5) What were the psychological effects?
Thanks!
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