| Swing trading and day trading involve buying and | | | | If your stops are too tight, you can easily get |
| selling stocks within a short time frame. Day traders | | | | stopped out at the slightest whipsaw. Professional |
| buy and sell stocks within the same trading day, while | | | | traders and market makers purposely shake up the |
| swing traders hold onto stocks for one to several | | | | market just to get rid of a lot of inexperienced |
| days. In order to stay in the game, you need to | | | | traders who have placed their stops too tight. |
| protect your capital. Using stops is one of the best | | | | On the other hand, don't place your stops too far |
| ways to do so. | | | | from your trade either, or you can risk a lot more |
| Plan Your Exit Before Your Entry | | | | capital. The key is to find a safe distance to place |
| Before you even enter a trade, you need to know | | | | your stop, without placing them too close. Come up |
| where you will exit the trade. You must place a stop | | | | with a formula for strategically placing these stops. |
| order immediately following your buy order. You | | | | Mental Stops Are a Bad Idea |
| should only move your stops in the direction of your | | | | Only the extremely disciplined and experienced |
| trade, never against it. This is your best protection, | | | | traders should place mental stops. Even then, it is still |
| and you must be disciplined enough not to go against | | | | a risk. You could be distracted by something, and |
| your rules. | | | | leave your trade unattended even for one minute, in |
| Move Your Stops in the Direction of Your Trade | | | | which anything can happen. You would be better off |
| If you are long, and the trade is moving is moving in | | | | placing an actual physical stop in order to protect |
| your favor, you may raise the stop, but never lower | | | | yourself as much as possible. |
| it. The reverse is true: if you are short, and your | | | | Of course, if the price gaps up or down (against your |
| trade is moving in your favor, you may lower your | | | | trade), your stop will be ignored. This is a possibility, |
| stop, but never raise it. This will not only protect | | | | but you would still be wise to place physical stops in |
| your capital, but it will also lock in your profits. | | | | order to maintain your trading capital, and stay in the |
| Keep Your Stops a Safe Width | | | | game. |