| To survive as a trader or investor you need that | | | | "XYZ". |
| professional "edge" or you are destined to fail. That | | | | A trailing stop loss is a price level which moves in |
| edge is implementing correct Money Risk | | | | accordance to the share price (Author prefers to use |
| Management principles in your trading decisions. The | | | | an 8 period ATR (Average True Range) Volatility |
| professionals use them and NOW you can too. | | | | Indicator with a 10 period EMA applied for medium |
| What I am sharing with you here today is not | | | | term trading. |
| anything new but a sophisticated strategy used by | | | | If you can imagine the share price constantly rising, |
| professional traders and investors globally in all | | | | you would want to protect some of the unrealized |
| market conditions for decades. | | | | profit. You can do this with the use of a trailing stop |
| All I am doing for you here today is trying to simplify | | | | loss, the same concept of a stop loss still applies. |
| these principles for you so that you can understand | | | | That is, the trade is immediately exited when the |
| them and have the confidence to implement them in | | | | current price reaches the trailing stop loss price. |
| your trading and/or investing. | | | | The most important thing to remember about any |
| I will begin with Risk Management or Stop Placement. | | | | stop loss is its importance in signaling an exit point |
| The professionals use various technical analysis | | | | where you must act and close that open trade. Many |
| techniques that are "invisible" to the majority of | | | | believe the exit is far more important than the entry. |
| novice and seasoned traders. | | | | Always protect your trading capital to ensure you |
| Have you ever felt that the market always seems to | | | | have the capital to trade another day! |
| "know" exactly where your stops are? Have you | | | | After share trading, educating and selling various |
| been frustrated by the market triggering your stop, | | | | forms of Technical Analysis Stock Trading Software |
| and then rebounding back in the preferred direction | | | | both to novice and seasoned traders for over 10 |
| of your original trade? | | | | years I found both Technical and Percentage Stops |
| Perhaps sometimes you feel that the market was | | | | were being placed in or around the same price level |
| intentionally gunning for your stops? | | | | by the majority of traders and investors. These |
| The bad news is... They are! | | | | were triggered and trades closed normally just |
| Stop running or Stop gunning is a common technique | | | | before the share price rebounded back in the |
| employed by Floor Traders. | | | | preferred direction. |
| Definition: Stop-running or Stop-gunning (both terms | | | | These Stop Loss price levels were generally near |
| are used) occurs when a share price is pushed | | | | major support and resistance or when looking at |
| through a support or resistance price level in order to | | | | market depth at key 0 and 5 price levels. E.g. $1.10, |
| trigger the stops that are hiding there. After the stop | | | | 2.20, $1.85, $2.25, etc. so I researched and found a |
| supply is exhausted, the market bounces back in the | | | | Stop Loss Placement strategy that would control the |
| other direction, usually winding up where it was | | | | risk I was exposed to but would still best optimize |
| before the exercise began. | | | | my trading capital. It produced a far less frustrating |
| Professional Traders know where your Stops are so | | | | result and also prevents over trading. |
| where should you place your initial Stop Loss? | | | | The strategy I use is based on 2 very important |
| Your stop loss acts as a trigger and is a price level at | | | | rules. The first is to never risk more than 2% of your |
| which you will exit the trade. This price level should | | | | trading capital on any one trade! The second rule is |
| be determined prior to the trade being opened, | | | | limiting trade value for any one trade to a maximum |
| where possible. The stop loss is the point at which | | | | of 20% of your trading capital, allowing for |
| you will exit the trade "no questions asked". A stop | | | | brokerage. e.g. I have $25,000 in Trading Capital, last |
| loss will help preserve your trading capital to make | | | | close of the company share I am interested in |
| sure you can trade another day. | | | | purchasing is $10 and I am allowed to allocate a |
| Remember, a stop loss is simply a mechanism which | | | | maximum of $5000 (20% x $25,000) on this trade, |
| signals the exit of a trade. A price level where you | | | | brokerage is $50 each way ($100 round trip) so my |
| must take action and close that trade first | | | | maximum risk of 2% is $500 less brokerage = $400 |
| opportunity and move on to trade another day. | | | | so I buy 470 shares ($4,700 + $50 brokerage = |
| Here is a typical example of how you could calculate | | | | $4,750) and so set my stop loss at $9.15 risking 85c |
| your stop loss.... | | | | per share or 8.5% so if my Initial Stop Loss is hit I |
| John has decided to buy $20,000 worth of "XYZ" | | | | have only lost a maximum of $500, which includes |
| shares using a portion of his current $50,000 (the | | | | my brokerage. ($9.15 x 470 shares less $50 |
| author would not risk more than 20% of his Trading | | | | brokerage is $4250.50 from $4750 is $499.50) This |
| Capital in any one trade e.g. $50,000 x 20% = | | | | makes determining your Stop Loss price level harder |
| $10,000) and has decided not to risk more than 1.5% | | | | to determine by the market as it is not based on |
| of his trading capital on the trade. | | | | Technical Analysis but by correct Money Risk |
| The current share price of "XYZ" is $2.00, so John | | | | Management principles. These values and many more |
| calculates that he is only going to risk $750 on this | | | | are all calculated for you automatically with JBL Risk |
| trade (1.5% x $50,000). He buys 10,000 shares of | | | | Manager version 8 (JBLRM8) and I urge you to trial it |
| "XYZ" at $2.00. (The author would also allow for any | | | | for yourself. It is very simple to use, includes a user |
| brokerage fees to be incorporated in this calculation) | | | | friendly operation manual (PDF format) and is available |
| John calculates his initial Stop Loss for this trade to | | | | from resellers globally or please visit my website and |
| be $1.925 (($20,000 - $750) / 10,000), so if hit the | | | | trial it there. A translated Spanish version is also |
| maximum loss will be $750 and John would | | | | available. |
| immediately close this trade and sell his holding in | | | | |