A
stop loss is basically like an insurance policy. It protects you should one of
your trades go bad. With a stop loss your position will automatically be sold
when the stop reaches a certain point. Using stop losses is a great way to
manage your risks. Here are 10 tips that will help you get the most out of
using stop loss orders.
Tip #1 – Never Use A Stop Loss
To Purchase A Large Amount Of Shares
While
stop losses can help you manage your risks, there are simply some situations
where they should be avoided. One of those situations is when you are buying a
large block of shares. When a large block of shares is purchased it can be very
hard to fill that order in a short period of time. As a result the trade can
become ineffective.
Tip #2 – Never Use A Stop Loss
During Active Trading
If
you are the type of trader who sites at the computer and watches trades all
day, than there no need to use stop loss orders. It serves little purpose since
you are right there watching everything that is going on.
Tip #3 – Watch Out For Those
Hidden Fees
Every
stock broker is different and will therefore charge different rates. Look for a
broker that uses a flat fee structure as this is the best way to go.
Tip #4 – Never Assume Anything
You
should always check your stop loss order to make sure it has been filled. Never
assume this has been done. Check all trade confirmations to ensure the stop
loss order has indeed been filled in its entirety.
Tip #5 – New Investors Should
Always Use Stop Loss Orders
If
you are new to the world of investing it is a good idea to use stop loss
orders. Doing so will help make trading stocks a lot easier. One of the biggest
problems new traders have is letting their emotions rule them. With a stop loss
order the emotional aspect is eliminated which will help you make better
trading decisions.
Tip #6 – Set Up Profits vs Loss
Ratios With Stop Loss Orders
Always
knowing your profits vs loss ratios is extremely important if you want to be a
successful trader. Stop loss orders can help you keep everything in order so
you know exactly what you have at all times.
Tip #7 – Watch Out For Trading
Gaps During After Hours
When
the stock market closes there can be stock price gaps that occur. When this
happens it can cause the stock to keep trading right through your stop loss
order. And as you can imagine, this can cause serious problems for investors.
Tip #8 – Set The Trigger Price
Using Common Price Increments
When
using stop loss orders it is very important that you set a good trigger price.
This is by far one of the most important steps in this process. It’s always a
good idea to use common price increments such as $30.00 or $75.50. Stay away
from increments such as $21.24 or $30.21.
Tip #9 – Pay Attention To The
Liquidity Of The Stock
The
liquidity of a stock ensures that the trigger price is reached. Use stop losses
with stocks that have a high average daily volume. Stocks with a high average
daily volume, 100,000 shares or more, decrease the chances that the order will
be traded through.
Tip #10 – Give Your Stocks At
Least 5% Of Space
If
the stock you purchase is trading at $200, your stop loss should be $195 or
lower. That way intraday price swings won't cause the order to trigger before
it is suppose to.
Stop
Losing Money!!! Stay on the right side of the market always with SENTIMENT
TRADER - http://sentiment-trader.blogspot.com
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