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ADXcellent Group! >
Enter Based On Risk
December 1, 2007
TraderDoc Commandment #2) Thou Shall Know Where The Stop
Goes Before Entering
How do we know that support or resistance has failed? What
we really want to know is when to get out. Profitable or
not profitable, exits have to be decided ahead of time so
that indecision does not lead us to lose great amounts or
to give back gains.
For example, you enter and price goes a little against,
then a little more. The pain is that you believe in your
stock! You believe it is a good position and do not really
want to get out. It drifts down a little more. You finally
get out and what happens? It makes a move up that would
have been profitable, your expectation! So the next time,
darn it, there won't be a stop.
The truth is that no one is 'gunning' for your stops. It is
just that we all do about the same thing. Prepare yourself
for disappointments. It happens. The only way to survive is
to protect your capital at the time of entry by having
stops in place as soon as you enter, and to preserve
profits when you have them by estimating targets. Trader
Commandment #2 helps us take the little loss quickly, then
rethink the trade and either get a better entry or maybe we
are glad the trade is gone. Small losses leave self esteem
intact. Bigger losses are an emotional and financial hit.
Money management take precedence over everything once we
enter a trade. And it doesn't matter if it is 20 shares or
20,000 - money management rules. - Candy Schaap
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