| A stop loss order is simply a trailing "safety net" | | | | and it falls out of that range, who knows where |
| that you can attach to a stock buy. The purpose | | | | the bottom might be. A stop loss order will sell |
| of a stop loss order isto keep you from being | | | | you out at a loss for sure, but it will save you |
| "trapped" in a stock that falls a ton of points. It is | | | | from the nightmare of coming home to find your |
| all done electronically and it is both easy touse and | | | | stock got slammed and now you own it but it's |
| quite mandatory in our opinion. | | | | down 30 points. |
| Many times you will hear ..Know your exit before | | | | Now for some things that a stop loss order will |
| you go in. On the downside though. For instance | | | | not solve.. first if your company announces |
| there are going to be times when you make a | | | | something bad before the bell and it gaps down |
| trade and it goes against you. That is normal and | | | | 15 points on the open, your order will fire, but it |
| it happens to every trader. The difference is that | | | | will sell you out at that low. Sometimes in that |
| if your trade was fundamentally flawed (you | | | | instance it is better to cancel your stop loss and |
| bought a stock thinking it would make a short | | | | hope that it rebounds. ( the thinking is like this, the |
| term run but it fizzled out instead) you should | | | | order couldn't save you, so since you have two |
| have a set predetermined price that you will let | | | | choices sell it at that low or hold it hoping for |
| that stock fall to and you are out. | | | | some type of nice rebound, often its better to |
| For instance lets say we think the XYZ company | | | | hold it.) |
| is going to fly because of a hot news release and | | | | Another problem is that if a company starts to |
| we buy 500 shares. but almost instantly the thing | | | | tank real hard your stop may get "run through" |
| starts backing up and soon we are down a couple | | | | or in other words stop loss orders are basically |
| points. Do you hold or do you sell? Since we were | | | | market orders to sell and if the stock is moving |
| looking for a run up over the news, and it was | | | | down quickly if the order to sell was at 96, it |
| greeted with selling it was probably best in this | | | | might fall all the way to 94 before you get filled. |
| instance to sell out and take our loss and move | | | | There always will be a battle between simply |
| on to a winning trade. But what if you buy a | | | | holding on to a stock and hoping to recover your |
| great company and because of market conditions | | | | losses with time,versus stopping out and taking a |
| or whatever, you are faced with your stock | | | | quick loss. It probably best to keep pretty tight |
| falling on you? That is where stop loss orders | | | | stops on and take small losses along the way as |
| come in. | | | | we trade and gain profits on ones that move for |
| Let's say we bought into XYZ and XYZ was a | | | | us. |
| great company . We think that it has the ability to | | | | One thing not advocated is having a |
| go for many points and history shows us that it | | | | predetermined "sell point" on the upside. For |
| already has in the past. So we buy it BUT we | | | | instance if we buy XYZ and it goes up for us 4 |
| attach a "stop loss order" to it. What that means | | | | points today, sure we could take our profit and |
| is that we are going to tell the broker just | | | | go, but instead we simply like to move our stop |
| exactly how far we are going to let XYZ fall | | | | loss up closer to its new level. This way if it falls |
| before we sell and take our loss. Let's assume | | | | back we will get stopped out but we will still have |
| XYZ is selling for 100 dollars a share and we | | | | a nice profit, but if it continues up we will simply |
| know that it often bounces up and down about 2- | | | | keep moving the stop up. There is no limit to how |
| 3 points in a normal days range. We might want | | | | many times you can move a stop loss order and |
| to tell the brokerage that we would like to sell out | | | | we often will move the point up on an hourly |
| at say ..96 dollars per share if it falls that far. | | | | basis if the stock is moving up well. |
| That is a stop loss order and it is attached to | | | | Let's say XYZ was 100 and we had a 96 dollar |
| your account electronically. They will ask if you | | | | stop loss on it. Now XYZ goes to 104 today. We |
| want that order good forthe day, or good till | | | | simply move our stop up to say 102. Now if it |
| cancel which simply means do you want the sale | | | | goes to 106 we in turn go to a stop of 104, etc.. |
| to fire off if the stock hits 96 dollars today only, | | | | This way we can still capture a lot of upside as it |
| or for the next 60 days (that is about the range | | | | keeps growing. |
| of a good til cancel order). Let's say we tell them | | | | I know how hard it is to watch a stock get |
| it's a "GTC". So from the time you bought XYZ , | | | | "stopped out" only to rebound a few days later, |
| and for the next 60 days or so if XYZ falls to 96 | | | | but sometimes its a long way down before they |
| or lower it will trigger your sell program and you | | | | stop falling. Stops really do work, and after |
| will take your loss. | | | | "crunching " the numbers of getting stopped out |
| The use of stops on every trade is suggested. | | | | versus the risks of holding on ...getting stopped |
| The reason is quite simple. If you know the | | | | out makes more monetary sense as far as |
| "average" daily range a stock seems to travel in | | | | having cash to trade with. |