Stop Your Stock Trading To Defense Against loss
A stop is a predetermined number below our entry price if we are long or short. Stops are their for our defense against loss when our program goes wrong.
Although they're not 100% accurate, you will find bad fills and slippage. The position has control of you, but you are out there arguing with it and if you do not have the stop in place then what do you do?
You have lost control, feelings begin to set in and you have gone done a road that you do not want to be on. You have entered in the wish I was not here sector. You start to lie to oneself announcing it will come back its just transient or better yet I could buy more shares to offset the loss, not realizing that it may decline further. Sure enough it comes sucking up all of the hard earned cash in a matter of a few days.
Now for the piece of humble pie. Stops should be placed with a money management plan behind it but first you have got to figure out how much you are ready to lose on any specific trade. As an example, let's assume that I have $5000 to trade with today.
If I'm Jumping Jack, a risky trader, and I use a high quantity of leverage, trade multiple amounts of shares and multiple stocks all at one time putting 40% of the total money that comes to $2000 at risk. Risky Rob chooses a 20% of the total which comes to $1000 at risk and Timid Tommy risks 10% of his total which comes to $500 at any 1 time.
Remember this is a total of all positions mixed if you're trading multiple stocks. If you're trading one then just work out what price that's and what it interprets to re order placement to either your broker or what to plug into your trading system which many of us are on now.
You've to examine yourself as to the risk tolerance category you fall into... which is whatever level that will get you to sleep at night and carry on with your life, with no tension or personality changes.
People get in trouble when they over trade and over leverage. Doing your homework on discovering out the current trend direction and determining your stop placement based on your tolerance to loosing cash should be component of your company plan.
Article Source: FxTradingStock.com
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by: Joseph Friedrich
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Date: Thu, 10 Feb 2011
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