Angus Rigby replies:
It can seem easy to beat yourself up about where to place a stop loss as almost inevitably some deals will be executed at a less than optimal price. It is certainly a difficult task to predict weeks, or months, in advance what price your share might fall to before rising again. This can be made doubly difficult with an investment trust where the Net Asset Value (NAV) can move independently of the share price.

To elaborate, investment trusts are closed-end investments with a fixed number of shares in issue, the price of which can be influenced by supply and demand.

Investment trust shares are usually standing at a discount, which tends to average out at around 15 per cent of the combined value of the shares they own. However, this figure is subject to huge variation. Some investment trusts are traded at much larger discounts, while some popular investment trusts actually trade at a premium (where the price of the shares is greater than the NAV). If there is high demand for the shares, not only will the share price rise, but the discount could close. The reverse can apply if there is low demand.

Looking more generally at technical indicators, the most common indicators for support on up trends are long-term moving averages (e.g. the 200 day moving average, 52 week moving average etc) or previous highs and lows. You could then look to place the stop loss slightly below the support level. Consider what you are using to time your sells; using the NAV graph instead of the share price graph might help you to determine which is more reliable for your stock.

Even if you make a loss on one stock this doesn’t mean you have to avoid it in the future and waste your research – treat it as a learning experience! Consider when and where you have been placing your stop losses and try to learn from the experience. For example, what caused your stop loss to kick in when it did? Above all, try to cut your losses early and hold on to rising stocks as long as you dare.