Wednesday, February 23, 2011
Stop and take notice
One of the key elements to my trading strategy involves the use of Stops. The graphic above provides a brief description of a Trailing Stop, from the Investopedia web site. This week has certainly provided a lot of good examples for why stops are so vital in capital preservation - either to lock in gains, or to keep losses to a minimum.
As stated many times on StockTwits, cash is indeed a position.
As far as how to set stops, whether it be on a percentage basis or a dollar amount, that is something that I leave up to you. Some folks use mental stops as well. Each person has their own Risk/Reward strategy (hopefully) and should stick to that no matter what trading ideas are obtained. For me, I try to anticipate what the stop hunters are going to do - and I just try to stay ahead of them the best I can. Obviously I am not always successful in winning each "battle" - but as long as I win the war I am fine.
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