In trading the stock market, nobody has a crystal ball. The price of stocks can go down, as well as up. What's required is an exit methodology that will allow you to survive the bad stocks, and make the best profit on the good stocks. The strategy that I have found to work best is a trailing stop loss. For those who don't know what a stop loss is, I shall explain briefly. A stop loss is an order for your stock broker to sell your shares if the price dips to the level that you have stated.
There are two ways of doing this. The most simple strategy is to decide on how much you are willing to lose as a share of your investment. A good rule is not to go less than 10%. Work out the cost of the stock at this level and set that as your stop-loss. As the cost of the stock increases, keep moving the level of the stop up to keep the % gap the same. Some brokers supply a trailing stop loss service, where you tell them what p.c. to set the loss at and they do it for you.
The second strategy is a touch more difficult, and comes from Nicolas Darvas in his book. How I made $2,000,000 in the Stock Market? The markets have a tendency to flow in stages. A stock on the rise will reach a peak, and then dip back down. It may do this numerous times at every stage. The idea is to follow the chart of the stock and see where the dips are the lowest, and set the stoploss just under them. A second part which Nicolas propounds is that when the stock breaks out of the sideways trend, to buy more of the stock, and when the stock starts going sideways again to move the stoploss up again to slightly under the lowest part of the dip.
Using the stop loss as an exit system, only works if you stick hard to it, and not lower it, thinking that the price will go up again in 1 or 2 days. In 1 or 2 cases you will be right, but what usually occurs is the price keeps moving against you, and you loose far more money. As a secondary to this, the money still tied up in the first stock that is falling can't be used on another trade.
Finally, a word of warning about using the stop loss system to guard your capital. There are occasions when the markets undergoes a fast fall in price, there are regulations about how far a price can fall in one-day. If it falls this maximum distance, it can bypass your stoploss, and you may be unable to sell. Although these situations are uncommon, it is better that you know about them. In order that they are not a shock when they do happen to you.
There are two ways of doing this. The most simple strategy is to decide on how much you are willing to lose as a share of your investment. A good rule is not to go less than 10%. Work out the cost of the stock at this level and set that as your stop-loss. As the cost of the stock increases, keep moving the level of the stop up to keep the % gap the same. Some brokers supply a trailing stop loss service, where you tell them what p.c. to set the loss at and they do it for you.
The second strategy is a touch more difficult, and comes from Nicolas Darvas in his book. How I made $2,000,000 in the Stock Market? The markets have a tendency to flow in stages. A stock on the rise will reach a peak, and then dip back down. It may do this numerous times at every stage. The idea is to follow the chart of the stock and see where the dips are the lowest, and set the stoploss just under them. A second part which Nicolas propounds is that when the stock breaks out of the sideways trend, to buy more of the stock, and when the stock starts going sideways again to move the stoploss up again to slightly under the lowest part of the dip.
Using the stop loss as an exit system, only works if you stick hard to it, and not lower it, thinking that the price will go up again in 1 or 2 days. In 1 or 2 cases you will be right, but what usually occurs is the price keeps moving against you, and you loose far more money. As a secondary to this, the money still tied up in the first stock that is falling can't be used on another trade.
Finally, a word of warning about using the stop loss system to guard your capital. There are occasions when the markets undergoes a fast fall in price, there are regulations about how far a price can fall in one-day. If it falls this maximum distance, it can bypass your stoploss, and you may be unable to sell. Although these situations are uncommon, it is better that you know about them. In order that they are not a shock when they do happen to you.
About the Author:
There's a full collection of articles and resources on finding the best source for making incredible investments at Tips and hints Which Could Improve Your Financial footing in the Stockmarket. If you'd like to discover more about making amazing investments, Click Here.
No comments:
Post a Comment