Stocks & Commodities V. 24:2 (28-32): Sell Using Stops by Thomas Bulkowski
The use of stops separates the professional trader from the amateur investor.
It doesnít matter what price you paid for a stock. What matters most is what you sell it for. Do you spend more time researching a buy candidate than you do a sell candidate? Thatís not necessarily a bad thing. I know Iíve turned on my computer only to discover, ďHey! I sold a stock!Ē
The easiest way to sell a stock is to use a stop. Itís
painless. Once the stop is in place, itís almost worryfree. Itíll do its job regardless of whether your
computer crashes, your neighbor cuts your phone line, or even if you forget to check in while on vacation. If youíre not making money in todayís markets, one reason may be that youíre not using stops. Why risk an immediate loss when you can hold out for a larger one? Thatís how amateurs approach trading. Itís also why so many seem to lose so much. Stop-loss orders can help change that.
Place a stop-loss order below the current market price. When the stock reaches or trades below the stop, the stop order becomes a market order. In a fast-moving
market or a thinly traded stock, you may be stopped out for more than you imagined. The stock may gap open lower, say by 30%, taking you out of the game for a hefty
loss. To avoid that, buy stocks that only go up. Of course, thatís like saying the best cure for insomnia is to get a little sleep.