Twitter updates 
| Traders' Notes | For new traders, start with a good flowchart. | |
|---|---|---|
Stock scans can easily identify new trends for stock sectors.
|
|
|
** A stop-loss or trailing stop loss is needed. Follow step 3 even if you trust yourself. |
||
| This move higher is Kinross Gold breaking-out. |
 |
|
Risk management. The Stop Loss - One key to success from a Traders' Toolbox. First, diversify your holdings. Do not let a single stock make up 100% of your entire capitol. Watching a stock fall without cutting your losses can turn a small loss into being wiped out. A new trader will just "hope" for a return to the original investment. The market does not care about your entry point. The investors and traders holding the stock may want different events to occur. We have traders "shorting" the stock, hoping the price will fall. Investors hope the stock will go up. We are finding a good number of our readers are not professionals and struggle to set stop-losses. From the large losses inflicted on most pros in the earlier stages of their careers; the fear of loosing money takes hold. The only way to discipline a new trader is to provide guidance. Losses will either break a trader or force a new way of thinking. Fear of loosing money on the opening bell should be real. Executing a trading plan is better than hoping for profits. When was the last time Indy drivers started the race without the roll cages, seat belts, and helmets ? A 5% loss is the most you should risk. This is a general rule for quality blue chip stocks. Stocks trading over $20 are more technically predictable for stop-loss points than lower priced stocks. Penny stocks below $1.50, are more like gambling than investing. A new trader will find stocks trading under $1 more appealing. The idea of doubling your money on a low cost entry stock has new traders counting profits before they enter the trade. The truth is Las Vegas was also built on low price slots. Most stop-loss points will not work on low priced stocks. Low volumes and a few traders will manipulate chart patterns. When a press release is announced on a junior gold miner, a rise or fall 20% is common. The volume on the news could spike 2-3 times average volume. A penny stock will rise for approximately 3 days. Day 1 is the spike on good news. Day 2 follows with a smaller % rise on 1.5-2X average volumes. Day 3 is a price top and rollover with lower volumes. Day 4 could be a sell-off as momentum traders leave looking for another trade. The 4 day pattern described is common for penny stocks.
Example: ABX, Barrick Gold is trading at $51.17. After entering the trade enter the stop-loss order. If the stop drops below 50 you would have changed the stop-loss to a market order. The stop-limit is to protect you on the chance ABX opens at $47. Without the stop-limit of $49.50, you just sold at $47. The range between the stop-loss and the stop-limit should be large enough for a trade to execute. For penny stocks, insiders control the volume and stop-loss rules do not apply. Avoid penny stocks if possible.
5. Do not lower the stop-loss for any reason. A traders' notebook will help discipline your trading stop-loss. These stops should be set when the market is closed and your emotions are not caught up in the media reports. If your stock is trading below your stop loss you need to ask yourself why you are still holding the shares. If you would not buy the stock at these prices, sell it and move on. Never marry a stock. A new trader may need to lose $20,000 - $100,000 for this rule to kick it. The Editors, |
|
Top Stock Traders uses technical analysis to pick stocks on the US and Canadian Markets. We research and code technical stock scans. Based on chart patterns, potential set-ups for short-term trading are identified. New traders can use this website to learn the basics of disciplined technical trading. Our intent is to help you become a better trader. Please read our Terms of Service. |