Link: Beware the Sneaky Stop Order

Jul 13, 2007: 10:11 AM CST

Prospectus at Move the Markets recently detailed entry, management, and exit (by stop) of a trade in RIMM.

The post highlights the detailed process from set-up, entry, and other aspects and then concludes with a nice explanation of the lesson learned from the experience that resulted in a 1-R loss due to stop-loss placement.

Prospectus notes the following highlighted points:

  • Don’t treat your data or your chart as gospel!
  • Place physical stop orders with your broker at your own peril!
  • Avoid any kind of round number for your stop!

In addition, readers have added various comments as to their experiences & advice on the topic.

I don’t have all the answers on stop-loss placement, and have fallen victim to renegade stop loss action and have also lost money by not placing stops to try to fight back against this phenomenon.  It takes practice and real-world experience/trading to figure out what works best for you and your system/approach, and there really isn’t one overall answer that works for everyone every time.   Keep practicing, readying, studying, and experiencing and once you have a solid basis, be consistent in your application of your method.

1 Comment

One Response to “Link: Beware the Sneaky Stop Order”

  1. Zach Says:

    I have a hard time putting in physical stop orders because I feel like I’m showing my hand to the street. It probably depends on size as traders may not push a stock down to get 500 shares but if I’m advertising a stop on several thousand shares it’s a different story.

    However one MUST be disciplined to honor a stop they mentally place on a position. If you don’t have the discipline to sell a stock when it stops you out at 50 because you think it will rally, and end up riding it down to 45 or 40, you would have been much better off with a physical stop even if it means you give up your position and strategy to the street.