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(Stocks) Discover 3 Secrets Tips that a Trader On line Already Knows About Setting Up Effective Stop

Any trader on line needs to set stops. But there are no hard and fast rules to follow. You,need to develop a system that fits your trading style. This means you need to follow your trading plan. However, there are a few tips I can share with you about stops that you might already know. Keep these in mind as you practice and cultivate the skill of setting stops. First, find out if your broker has rules about where and how stops are set. For example, some brokers have a rule that protective stops must be set at ... read more

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Any trader on line needs to set stops. But there are no hard and fast rules 
to follow. You,need to develop a system that fits your trading style. This means 
you need to follow your trading plan. However, there are a few tips I can share 
with you about stops that you might already know. Keep these in mind as you 
practice and cultivate the skill of setting stops.
First, find out if your broker has rules about where and how stops are set. 
For example, some brokers have a rule that protective stops must be set at a 
minimum amount below the current bid when you're long, a stop sell, or above the 
current ask when you're short, a stop buy to cover. The rule may be that a stop 
sell order must be at least .25 below the current bid.
This trade isn't usually a problem with a high priced position. But, with a 
very cheap position, you, the trader on line, might not be able to set a tight 
stop unless you wait for the bid to move up. In addition, if the price of a 
position is dropping quickly, the bid may come too close to the stop you're 
trying to place before you're able to place it. This can cause your order to be 
rejected. Another rule some brokers have is that stops can't be set more than a 
certain percentage lower than the current bid or, on a short, higher than the 
current ask. They may specify that a stop be set no more than 30 percent lower 
or higher. I have no idea why you, the trader online, would ever want to lose 30 
percent of the value of your trade before stopping out, and I would never 
recommend setting a stop that low.
My second tip is to always review orders carefully before placing them. You'd 
think it would be impossible to place a limit order when you, the trader on 
line, mean to place a stop, but it's easy to do when you're in a hurry. You need 
to make sure you, the trader on line, don't enter a limit order out of habit 
when you mean to place a stop loss. If you place a limit sell order at a price 
below the current bid, at the place where you meant to place your stop, it will 
execute right away and you'll be out of the trade. Since a successful trader on 
line generally uses limit orders to enter a position; it's not surprising that 
many traders have been known to place two limit orders in a row. 
Last, don't leave stops in place overnight. Many markets are volatile at 
opening. Most mornings, for instance, NASDAQ stocks either gap up or gap down 
from their prices at the previous day's close, and then they swing wildly as 
overnight market orders are filled. For example, a stock could close at 33, open 
the next day at 32.80, drop to 31.94, and then bounce back up to 33.15 before 
stabilizing and finding its direction. It could also close at 33 after a good 
day, open the next day at 33.75, spike up to 34.50, and then drop back to 33.60. 
The possibilities are endless.
If you, the trader on line, have an overnight stop in place on a long 
position, it's likely to be triggered by the morning's volatility. This normally 
will stop you out at the low end just before the stock bounces back up. Remove 
your stops after the market closes, and reset them after the opening changes the 
next morning so they will protect you, the trader on line, from a real downside 
rather than routine volatility. 
You might consider doing what one trader on line does, particularly when the 
market has no consistent direction. Avoid holding many positions overnight. Once 
you, the trader on line, gets better at expecting what will probably happen the 
next day, realizing there can always be overnight surprises, you'll feel more 
comfortable making judgment calls. As always, if you, the trader on line, don't 
have a good idea what will happen, it's best to avoid the situation, and stay 
out of the position. In addition, if you'll be unable to trade for several days, 
consider whether it makes more sense to set stops or to exit your positions 
altogether. Unless you're in a great long term trend trade and the market has a 
definite direction, it may be better to exit all positions and start fresh when 
you return to trading. Your capital and profits will be safe, and new trading 
opportunities will be waiting for you.

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