Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Lycos -- Ignore unavailable to you. Want to Upgrade?

To: Steve Rubakh who wrote (2023)	5/12/1999 3:59:00 AM
From: Teresa Lo	Respond to of 2439

The Stop Loss Order: Mental Health Insurance Successful trading is largely about controlling your emotions. One of the strongest feelings you have when you enter a trade is the fear of being wrong and losing money. Obviously there is no way to eliminate this fear except by not trading altogether, but there is a way to control your fear once you have taken a position; it is called the stop loss order. Every time you want to buy or sell short, you must always predetermine the price at which the market will prove you wrong... this will be your stop loss point. In fact you must give as much thought to your stop loss price as you do to your entry price… the two decisions go hand in hand. Once you have decided on the stop loss price, write it down on a piece of paper! The moment that you get confirmation that your order to establish a position has been filled, you IMMEDIATELY enter your stop loss order into the system. I can't over emphasize the importance of making this a routine. You need to be able to define your risk instantly in order to maintain a healthy state of mind. Without knowing exactly how much you are going to lose if the position goes bad, your mind invariably begins playing tricks on you, and you lose your emotional balance. Often times I will enter a position, get my confirm, and go to enter my stop loss order and find that the network has suddenly gone down, or the webBroker goes down or gets painfully slow, and I can't instantly enter it. I go bonkers every time, and even though I eventually do enter the stop loss order by calling the broker (and suffering through 10 minutes of muzak), my routine, my rhythm, has been broken. The stop loss order is like Linus' blanket, you can't remain in control or be comfortable without it being in place. But Where to Place the Order? Now that we know when to place the stop loss order (IMMEDIATELY after entering a position) the next question is where do we put it? Well, as a wise man once said, how much do you want to lose? Since I trade off the 5-minute chart, I generally place my stop as close to my entry as possible, and usually beneath a level, which I judge, is intraday "support." Let's look at an example. Imagine that some fellow trader sent you a message at one o'clock yesterday afternoon saying that she thinks LCOS is going higher and that you might want to take a look. This person is not only a trusted friend but is also a very experienced LCOS player, so you pull it up and find that it does indeed look promising. After the morning gap up, the stock has settled into a tight range, and is not exhibiting any telltale weakness. Your friend hints that if the morning high is taken out, the stock could run to X price and provide a very decent gain. So you want to buy, and you wait for it to come in to the 20 period exponential moving average. A bullish reversal, tweezer bottom pattern forms there (at arrow A) and you buy in, paying 99 1/8. The low of that bullish reversal candle, 98 7/16, should act as a good spot to place a very tight stop, because of the bullish candlestick pattern and the support provided by the 20 EMA. You have defined your risk at 5/8ths of a point, or $625 on a thousand-share order. You might want to place the stop a tick or two below the actual low to give yourself a little more "wiggle" room. If you are feeling really rich you can place your stop below the swing low at 96 5/8 (at arrow B), risking $2,625 on a thousand-share order. It all depends on how much you want to lose when the market proves you wrong. Breakeven Once price has moved far enough away from your entry, you can move your stop loss order up to your entry price, thus assuring yourself a breakeven trade at worst. There is some judgment involved in deciding when it is a good time to move your stop to breakeven. If you do it too soon, you may get stopped out of a trade that then runs away on you, but there's always a chance to get back on if that happens, and I recommend erring on the side of caution, and moving your stop to breakeven as soon as your "little voice" tells you to. Written by Smart$, a regular columnist. Unable to post chart here.