If you follow my articles or my stock analysis, you already know that I am not a supporter of physical sell stops due to the fact that market makers can manipulate these stops during the day. A market maker can drive the price down artificially during trading hours setting off physical stop after physical stop only to allow the stock to rebound and close for a slight loss or a possible gain. The market makers that drive down the price are the same individuals that grab shares at the new intraday price lows, giving themselves an instant profit at the expense of investors like you and me. I fell victim to this trap several times in 2002 and 2003 and became very angry at my stock system until I understood what was really happening. I had established positions in stocks and set a physical sell stop about 7-10% lower to protect from a larger loss. I would come home or take a break only to see that I was automatically sold out of the stock due to a brief drop that only lasted a few minutes to a few hours. The stock would drop anywhere from 15% to 25% intraday only to rebound for a small 1% or 2% loss.

In one case, my stock that had been sold out intraday actually managed to close the day with a slight gain, really making my emotions rage. This same stock went on to double over the next nine months but I never had the courage to get back in. I took this anger and quickly converted it into a research effort that would help me understand what had happened and why it had happened and most importantly: What can I do to prevent it from happening to me again?

I started to study the three instances where this action happened to me and I researched other stocks that I did not own but showed the same type of false intraday movements. After reading about market makers and my individual research, I came up with a solution to the problem. If I narrowed down my portfolio to only high quality stocks, both fundamentally and technically, I knew that my risk was low enough to withstand an intraday movement without placing a physical stop. Barring a catastrophic event, I felt comfortable enough to set a mental stop in my head and write it down on a piece of paper so I could review the stop after the day