Tuesday June 26, 2007

Stop Orders

Most successful traders will tell you that the real secret to making money on the markets is to use stop orders on every trade you make. Using stop orders from the outset is very good practice to get into. Once you start using stop orders you wont make a trade again without one.

Yahoo Inc

Chart courtesy of StockCharts.com

By using a stop order you’re not only being cautious but you are also playing a strategy that will have to play out at some stage. So if you purchase shares at 20 dollars & you set the stop order at 19.50, then if the stock drops 50 cents, the stock sells automatically.

By using a stop order you commit to the trade from the start. This means that you can walk away from your computer & let the trade go ahead, you’ve basically taken the emotional aspect out of the trade.

Yahoo Inc

Chart courtesy of StockCharts.com

Many traders who don’t put in a stop order will stare at the screen hoping the stock will go up again soon, they’ll let it drop another 10 cent & again later another 10 cent, all the time hoping it will go back up again.

You don’t need to be in an emotional state like this because more than often your human side will come out & you’ll hold on hoping. Always have an exit strategy before you make the trade.

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