Making Money from Share Trading and Investing Through Using Stop Losses
A stop loss is a price that we use as the trigger price to sell out of a losing trade. We need to have a stop loss price because not all trades succeed - some fail. Even the best trading techniques struggle to deliver a success rate of more than 70%. Therefore even using some of the best trading techniques we will still end up with two or three losing trades out of every ten. For these losing trades we must keep our losses really really small.
There are only five possible outcomes from any trade:
A large profit.
A large profit.
A small loss.
A large loss.
A small loss.
Five possible outcomes, no more, no less. Every trade that you ever do will result in one of these five outcomes. If you had the choice of eliminating one of these five outcomes, you would certainly choose to eliminate the large loss. Eliminating the large loss only leaves the other four possible outcomes. If our small losses, breakeven trades and small profits even out over a period of time we will only be left with the occasional rather pleasing large profit.
We use the Stop Loss to eliminate any large losses because it is clearly a very sensible thing to do.
We use a Stop Loss Rule with three parts to it:
1. With every single trade that you do you must have a Stop Loss in place.
2. The level at which you set your Stop Loss price is set at the level where your loss will be 2% of total trading capital.
3. When your Stop Loss price is hit then you must sell. No ifs, no buts, no maybes. No waiting one more day/week/month/year until your trade turns into a "long term investment".
The most difficult part of this rule is part 3, selling when your stop loss price is hit. It's the most difficult part of the rule because most of us hate admitting that we are wrong about anything! Despite this huge emotional drag not to sell - sell we must. When your stop loss price is hit you sell. Sticking to this simple and straight forward rule will protect your hard earned cash when you trade. - 23305
There are only five possible outcomes from any trade:
A large profit.
A large profit.
A small loss.
A large loss.
A small loss.
Five possible outcomes, no more, no less. Every trade that you ever do will result in one of these five outcomes. If you had the choice of eliminating one of these five outcomes, you would certainly choose to eliminate the large loss. Eliminating the large loss only leaves the other four possible outcomes. If our small losses, breakeven trades and small profits even out over a period of time we will only be left with the occasional rather pleasing large profit.
We use the Stop Loss to eliminate any large losses because it is clearly a very sensible thing to do.
We use a Stop Loss Rule with three parts to it:
1. With every single trade that you do you must have a Stop Loss in place.
2. The level at which you set your Stop Loss price is set at the level where your loss will be 2% of total trading capital.
3. When your Stop Loss price is hit then you must sell. No ifs, no buts, no maybes. No waiting one more day/week/month/year until your trade turns into a "long term investment".
The most difficult part of this rule is part 3, selling when your stop loss price is hit. It's the most difficult part of the rule because most of us hate admitting that we are wrong about anything! Despite this huge emotional drag not to sell - sell we must. When your stop loss price is hit you sell. Sticking to this simple and straight forward rule will protect your hard earned cash when you trade. - 23305
About the Author:
Looking to find the best deal on sharetrading, then visit www.justshares.com.au to find the best advice on share trading courses for you.
posted by Mr. Forex at
3:59 AM
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