(UTS) How Stops Help You To Make Money In The Stock Market

by David Jenyns

To make money in the stock market, setting stops is an imprecise science and involves a lot of trial and error, but it is an integral part of being a successful trader. A good analogy is to compare stops to buying insurance for your business. Should you avoid insurance altogether just because you’re not sure exactly how much you need, or because it will cost you a little money? No. Instead, you estimate and do the best you can, and in the end it will be well worth the effort.

Where insurance limits risk of loss through disasters, stops limit your risk of loss on bad trades. Stops make it possible to take small losses and get out when a stock goes against you, protecting your capital. Yet, some traders find that they are unwilling to take a loss on any stock. They don’t want to admit that they made a mistake.

Another key to make money in the stock market, what often separates a good trader from a bad one is the ability to take small losses. Your goal, as a successful trader, is to take small losses and make big gains. If you do this, you’ll be profitable. But, you ask, what if you stop out of a stock you still want to trade? Well, you can always buy it back later, and likely at a better price, if the trade still has potential.

Besides limiting risk and helping you take small losses, stops are valuable because they protect profits on winning trades. As I discussed in a previous article, you must lock in your profit when you trade, or you can lose it. You can ensure that you keep your profits by using trailing stops. A trailing stop is a stop order you place below the current price of a long position, progressively moving it up as the price of the position increases so that the stop follows the position up. For a short position, to make money in the stock market you set a stop above the current price and then move it progressively down, following the position as it trends downward.

This means that once you have a profit, you move your stop nearer to the current price so you’ll stop out with most of your profits intact if the position moves against you. If the stop executes and you decide you want to trade the position again, you can buy it back at a better price than you sold it for and then ride it up again. That’s how a good trader makes and keeps money, make money in the stock market by taking small profits multiple times, rather than risking too much waiting for a big win.

-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-
David Jenyns is recognized as the leading expert when it
comes to designing profitable stock trading systems.

Discover the "secret formula" of trading that anyone can use
to consistently generate BIG profits from the market by
downloading your FREE copy of David's new Ultimate
Stock Trading Systems course.

Click Here To Download ==> Stock Trading Systems
http://www.ultimate-trading-systems.com/stocks.html
-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-

Article Source: http://EzineArticles.com/?expert=David_Jenyns

More Articles About Stock Trading

(Stocks) Steal Warren Buffet's Stock Market Lesson Plans?

David Jenyns

Why should you want to steal someone else's stock market lesson plans?

The Trading Psychology Plan

Barry Lutz

Did you ever see the movie The Italian Job, and if so do you remember when John Bridger asked: "you see those pillars over there, thats where they used to string up thieves who felt fine." Make the transition from paper trading to real money trading and you will feel FINE too - Freaked-out Insecure Neurotic and Emotional. And what a great analogy string up is, because after all those months of paper trading winners are replaced with real money losses, that is exactly what you will feel like doing to yourself.

A Closer Look At Day Trading

Gregg Hall

Day trading is a controversial word in the world of stock trading. Many see it as a way to make a living off of the fast paced stock market. The Securities and Exchange Commission (SEC) warns against the practice and cautions against getting involved in the practice.