Trading Basics: Evolution of a Trader

DID YOU EXIT BEFORE THE STOP?

In rare situations (maybe three times per 500 trades), I will lower the stop (often due to questionable placement) or remove it altogether.

For long-term trades, sometimes I will use a stop for a while when I think the stock is going to reverse, and I have doubled my money. I want to capture the double, so I put a stop in place. When the stock resumes its upward push, giving profits a comfortable cushion, I will remove the stop.

After placing the initial stop and assuming the stock moves up, did you raise the stop? Keeping a stop properly positioned as the stock climbs is a wonderful way to cut your losses and let your profits ride. I am sure you have heard that phrase.

When I started using stops on every trade, I was surprised. I knew it would cut my losses, but I was also pleased to discover that I gave back less profit. It is aggravating to see a large gain dwindle and then disappear altogether when a rising stock reverses and turns into a loss. You look back at the chart and ask, “How could that happen? Why didn't I sell at the top?” Using a trailing stop helps prevent the profit giveback.

• Did you use a trailing stop?
• Was the stop properly positioned?
• Did you exit before the stop triggered?

Have you ever looked at a chart and said, “This trade is going to be stopped out”? Price is trending down, other stocks in the industry are melting like ice cubes in a frying pan, and the market is in freefall. The inner voice that develops with experience ...