Moving Stops DownMoving your stops down during times of panic is very tempting. It becomes even harder when you believe the market is just overreacting to bad news. But it is absolutely critical to hold your ground when trading.You should never buy a stock without a stop level. This is a level that is the most you are willing to lose on the trade. It is the level that you pull the plug if it is reached and get out with your losses. Only by managing your risk and cutting your losses short can you be able to last in the stock market. If you only lose 2-5% of your account on 1 trade it will leave too big of a dent in your account. You will still be able to come back without much difficulty. Ok, but stocks pull tend to back and recover right? This type of thinking is what causes new investors to stay in a trade way too long and watch their accounts go down. The fact stocks can fall for a long while before recovering. Strong stocks normally don’t just fall for 10 or 20% before they start to turn around. Many stocks can fall 50%, 60%, or even more before they start to turn around. And some stocks might never turn around. The last thing you want to do is hold a stock through a 50% decline hoping you will break even one day. On the other hand if you do not move your stop level lower you can exit the trade for a smaller loss and can look for better opportunity elsewhere. There is always opportunity to make money in the stock market so why hold a stock through a 50% decline. Remember the stock market is a battle field, holding your ground when it comes to following your rules is a must.
|
