Trade to Win - Proven Strategies to Make Money

c17 JWBT016-Busby September 30, 2008 14:43 Printer: TBD

164 THE WILD CARDS

the market will prove you wrong. For example, if you are going long, where

is support? If support is broken to the downside, the market is probably

heading down to the next tier of support. Why hold on at that point? Get

out. Or, if you are short, where is resistance? If resistance is broken, the

bulls are stronger than you thought. That means the market is telling you

that you are wrong. Listen to the message. Before taking a trade, identify

those points and put a stop/loss order there. In that way the market will

take you out and your financial loss will be limited.

Once you are in a trade, the desire to win becomes very strong, some-

times overwhelming. Even when a stop/loss order is used, traders will

sometimes move it to stay with the trade longer and give the market

more room to move. As prices move against the trade and toward the

stop/loss order, these undisciplined traders just move the stop and keep

losing money. Once the stop/loss order is placed,nevermove it farther

from the trading price. In some conditions you may want to move it closer,

but never farther away. If the trade is not working, there is no reason to

give the market more of your cash. If a loss is going to be suffered, better

to take it sooner than later. In that way the loss will be less.

PEARL 23

Take losses more quickly than profits.

I suggest that traders use stop/loss orders with every trade. A stop is

not guaranteed to work under all market conditions. In the stock market,

prices may gap down. For example, if you are short a blue-chip stock and

the company announces earning after the exchange on which it is traded

has closed, prices may gap up at the next day’s open. You will not get your

hoped-for stop/loss price. That is, there may be slippage. But there is some

protection with a stop/loss, even under these conditions. Also, in a crash,

the stop/loss price may not be hit. Prices may surge past it. Nevertheless,

you should always use a stop. In orderly market conditions, stop/loss or-

ders will work as planned and offer protection.

PEARL 24

Always use a stop.

Have an Exit Strategy

Never take a trade unless you know where you will get out of it. There

are two price points that you should know when you click that mouse.