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Pastimes : Home on the range where the buffalo roam -- Ignore unavailable to you. Want to Upgrade?

To: jjkirk who wrote (5412)	9/27/2000 9:41:50 PM
From: jjkirk	Read Replies (1) \| Respond to of 13572

=========== Net Academy =========== Stop-Losses : Limit the Pain and Enhance the Gain By David Van Horn You have all heard it a million times. Perhaps the first time was in the very first book you ever read about trading, or that first seminar you attended on how to win in the stock market. To survive, and better yet profit as an equities or options trader, you have to be disciplined enough to ‘cut your losers short and let your winners run.' OK, sounds simple enough. Yet, the spring correction of this year saw large numbers of trading accounts experience huge draw downs and an unprecedented number of margin calls. If stop-losses are such a simple concept, why don’t more people use them? First of all, you have to become comfortable with the notion that it is part of trading to experience losses. In fact, most successful traders don’t count on more than forty-to-fifty percent of their trades to be winners. They survive and prosper through good money management techniques, with one of those techniques placing a stop-loss order for every trade that they enter. Stop-losses are our only insurance against stocks that don’t behave as we had planned. They also help to enforce another basic concept you read or learned about early on - emotionless trading. The only way to survive as a trader is to preserve your capital; therefore, placing a stop-loss order demonstrates that you are considering the risk involved in a trade as well as the potential profit. There are a number of strategies available for setting stops, and ultimately it is up to each individual trader to determine what works best for his or her risk profile and trading style. Below are four generally accepted types of stop-loss orders and some additional information about each. Initial Stop-Loss As equities traders, it is our objective to identify stocks that appear to be establishing or extending trends in price movement, then hop on board for the ride. In doing so, there are key points of resistance and support that will be critical in determining when to enter and exit a trade. In the case of a long position, a good point to place the initial stop-loss (once you have entered the trade) is at some point below a recent key support level. It might be as simple as placing the stop one-half to one point below the previous day’s low price under the assumption that a breakdown below that level would signal an end to the current trend. Break-Even Stop-Loss Hopefully, the initial stop-loss is an insurance policy you won’t need the majority of the time, and at some point during the trade you can adjust your stop to the break-even point (entry point). Once you have done this, you now have a ‘free trade,' since the most you stand to lose on the trade is the cost of commissions. When should you adjust your stop-loss to the break-even point? That depends on your trading style. Some folks utilize a percentage basis, such as, once the stock is 1-2 percent above the entry point then adjust the stop. Others want to see the price move by more than the average daily range before adjusting the stop, in order to minimize the risk of getting ‘stopped out.' It takes judgment and experience to know when, and by how much, to adjust a stop. Experiment and see which approach works best for you. Trailing Stop-Loss At times you will enter a trade that reaches neither your initial stop-loss point nor the point for adjusting to the break-even stop loss by the close of trading. In this instance, you may want to change your initial stop-loss to a trailing stop-loss to take into account the price action of the current day. You will always be making the adjustment upward for long positions, and downward in the case of a short position. For example, if you had opted to place your initial stop-loss one-half point below the previous day’s close, then you would adjust that stop to be one-half point below the current day’s close, assuming that the trade went in your direction. Be very careful about adjusting stops when the trade moves against you, as this defeats the intended purpose of the stop-loss. Profit-Taking Stop-Loss The profit-taking stop-loss is just that, a stop intended to lock in profits. This type of stop is used when a position is moving in your favor, and is implemented by adjusting the break-even stop-loss to some point closer to the current trading price. Again, precisely where to move it to depends on your trading style. Adjusting the stop to a point just below or above recent support or resistance is one option, with the thought that a violation of either of these levels could signal the end of the recent trend. At that point, it’s time to take your money and run. While stop-loss orders are effective trading insurance, they do have their shortcomings. The volatility we see in the markets today makes it more likely that stock prices will swing through your level and prematurely close out a position. One way to counteract this is to put on smaller position sizes and widen your stops a bit. Stop orders are susceptible to gap opens, meaning that it is possible for a stock to gap open and miss your stop price - leaving you holding the position. In that case, it is usually best to use stop market orders opposed to stop limit orders. Remember, there is nothing wrong with entering a trade again after being stopped out if your original premise for entering the trade is still intact. Stop-loss orders add a measure of process and control to a trading plan, and once you get in the habit of using them you should begin to see the results in your account equity as well as your overall confidence level. NetBulls.com

To: jjkirk who wrote (5412)	9/28/2000 8:44:55 AM
From: Boplicity	Read Replies (1) \| Respond to of 13572

Joe thanks, I like the run down they did. re:<<Hopefully, once the fund managers have jettisoned their losers, the bulls will come back in full force to give this market a sustainable rally.>> Well that normally happens next month too. This year we have the prospects of an earning season that will be less the favorable. What to look for as in stocks to buy or hold. Hold is the keyword in the sentence. Look for stocks that haven't sold off and are holding their gains during all this rock and rolling. Greg