Hey Market Pilot,
As a primarily end-of-day trader, there are often times in the middle of the day where I step away from the market. That is why a major component of my trading style involves setting stops. I do this with almost every trade I take in order to protect my account from unexpected action while I’m away. But how do you set them up correctly?
While there are no defined “rules” for setting a stop, it does take a little bit of art, science, and personal preference to get it right. However, they shouldn’t be overly complicated.
Parameters for my stops…
Other than my Moxie IndicatorTM, my trading revolves around moving averages. So when setting a stop, I like to put them just below the daily 21, hourly 50, or 15-minute 50 simple moving average. I usually want to see price hold those moving averages, but if they can’t then I am stopped out. Pretty straightforward.
Alternatively, you can also set stops on a timeline. It is perfectly fine to give a stock an allotted amount of time to perform. If they don’t behave how you want within that window of time, it’s best to cut them loose and move on to a more energetic name.
Setting stops isn’t meant to be perfect all the time. They are meant to be a line of defense to your account. Admittedly, sometimes I set them too tight, but you can always get back into a trade once you are stopped out. Wouldn’t you rather reenter a trade than blow out your account because a stop was not in place?
My dad would always tell me “your first loss is usually your best loss.” What this means is that you should just take the hit when your stop triggers or the position goes against you. Otherwise, you’ll just make it worse.
Your Profit Pilot, TG