The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

HARD AND SOFT STOPS

A hard stop is an order you place in the market. A soft stop is the number you keep in your mind, prepared to act as soon as the market reaches that level.

I am a little reluctant to discuss soft stops here. It is a topic for professional and semi-professional traders, and I am concerned that some beginners may misunderstand and misuse it. For most beginners, a soft stop is like no stop at all.

This reminds me of a TV commercial—a company advertised a soft drink by showing people on motorbikes zooming up and down steep slopes. Splattered across the bottom of the screen in big white letters was a warning: “All tricks performed by trained professionals. Kids: do not attempt to duplicate at home!” And that’s exactly what I’d like to say about soft stops.

If the topic is so dangerous, why not leave it out of the book altogether?

Because I want this book to be useful for the people who are rising to a higher level of expertise and may find hard stops too rigid. I want to put control into your hands, trusting you to make reasonable decisions.

Just remember that hard stops are for everybody, but soft stops are only for the pros or serious semi-pros.

Whatever method you use for setting stops, in the end you will come up with a number—the level for your stop for the next trading day. Will you make that number a hard or a soft stop?

A hard stop goes into the market as a specific order—you actually give it to your broker. The big plus of a hard stop is that ...