Stop-Loss-Order and Capital Preservation
How and where do we place our stop-loss-order ? This is one topic that raises so many questions and just not enough answers, having attended so many seminars, heard so many so called professional traders talk… that most falter when it comes to answering the most important question on almost every traders mind “when do we get out and save our skin? How do we know when to take profits and close that trade? Knowing when to cut your losses and having a protection strategy is an important part of any trading. The vast majority of traders place importance on learning how to pick the best stocks and to learn the art of precision entries. Knowing where to place your stops and how to react when the price begins to go in the opposite direction must take priority over everything else. The importance of capital preservation is what every trader must understand. A good trader is one that knows when to cut his losses and survive to trade another day!
There is no one straight answer or method of achieving this…it all depends on the type of trader you are, your risk appetite, trading that you propose to do or are involved in, or if you just have more money than common sense (jokes aside), will determine the final out come…your survival as a trader! You will note that earlier in my videos – subject to the condition that my trading strategy is complied with; I suggested using the SAR indicator to set the stops This method of setting a stop loss is fine and reasonably acceptable because if the trade is going in your direction, the “stop” trailed with the SAR signal quite comfortably makes amends for most price movements ensuring you are not taken out prematurely. The idea here is to monitor the trade until the price move allows you to adjust the stop-loss-order to a break even point and then you are trading with the markets money. If your broker offers automatic trailing stops - than this is when to action this!
As seen in the video above, another very effective method of setting and trailing the stop loss level in an advancing market (going UP) is to adjust the “stop” to the previous days low. In a descending market (going down) you need to adjust the “stop” to the previous days high |
