It is the most common question I’m asked: “How do you determine where to place a stop loss order?”
And it’s a great question. Newer traders need to know it. Experienced traders will often study it and refine it. It’s arguably as important [1] as any other aspect of a trade.
So here I am setting out to create this mini-series as a resource. There will be several parts, so check back often for the segments to come.
There are several aspects to stops which I feel should be addressed, so I’m going to cover them in pieces. Small, bite-sized, easy-to-digest pieces.
Hopefully they’ll be helpful to your trading approach and enable you to specify some ways to protect the downside [2]. After all, a stop loss can be your safety net [3].
Timeframes & Personalities
Deciding on the placement of an initial stop loss will boil down to a few things, not the least of which are (1) your trading timeframe, and (2) the personality of the stock being traded.
I’ll elaborate on each of these in the video, but essentially they’re my starting point:
Longer timeframes necessitate wider stops, and shortened trading timeframes warrant tighter stops.
Similarly, a lively stock deserves a wider stop, while a stock which tends to move very methodically will justify a tighter stop.
Watch this clip and let me explain more thoroughly, along with some examples. It is also posted over at the Trading Videos [4] site, but I’ve embedded it here for your convenience. And if you have questions pertaining to stops, add them to the comments section or contact me directly and I’ll try to work those into the next few segments.
Let me highly suggest clicking the “HD” on the video player and then going full-screen for best quality.
Update: Check out Part 2 [5], Part 3 [6] and Part 4 [7] of this series!
Thanks for stopping by and I’ll see you here soon with more. Until then…
Trade Like a Bandit!
Jeff White
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