| As a day trader you already know that one of the | | | | low would have a normal (regular) fluctuation of |
| cardinal rules to be successful is money management, | | | | 0.80% ($0.08/$10.00). Assuming you used position |
| and in particular, open position management. Many | | | | sizing to have equal dollar amounts per open position, |
| traders know how to set protective stop losses to in | | | | you can see that the $10 stock in this example could |
| case a trade does not work out in their favor, but | | | | be riskier than the $70 stock. It all depends on the |
| knowing how to set stop losses on profitable open | | | | individual tendencies of the particular stock. |
| positions can be a bit more tricky. To understand | | | | One way to gain an edge on your competition, and |
| why properly managing your "stop-out" point on a | | | | possibly compete against the computer algorithms |
| profitable open position is important, simply ask | | | | which drive much of today's intraday trading, consider |
| yourself one question. | | | | analyzing the tendencies of the stocks which you |
| Ask yourself how much more profit would you have | | | | normally trade. Define a percentage limit of how |
| in your day trading account if you were able to | | | | much "acceptable" fluctuation you can accept on a |
| recover just 1% of the money you "gave back" | | | | regular basis. For example, if you can accept no more |
| from each trade's maximum profit to the amount | | | | than 0.40% of regular fluctuation (your acceptable |
| you actually made when you closed out the position. | | | | "give back" amount) then find software which allows |
| Over the course of most day traders' careers, just | | | | you to set percentage trailing stops. Select stocks |
| recovering 1% of your "give back" amounts would be | | | | which have normal fluctuations less than (or equal to) |
| a significant amount of money! The key to begin to | | | | the give back amount. Then set the percentage stop |
| recover some of your "give back" profits is to | | | | to just slightly more than your accepted percentage, |
| master trailing stops. | | | | such as 0.45% in this example, to account for |
| One of the reasons trailing stops on open positions is | | | | slippage. |
| difficult for most traders to use is because many | | | | If your software does not allow for percentage |
| software programs offer trailing stop amounts in | | | | trailing stops, then keep a calculator near your |
| fixed units of dollars. In other words you can set a | | | | computer if you cannot quickly calculate percentages |
| 20-cent trailing stop, a one-dollar trailing stop, etc. | | | | in your head. Some day traders even print out a |
| Most stocks, however, fluctuate on a percentage | | | | small conversion chart to estimate trailing stop |
| basis. For example, a $70 stock which normally | | | | percentages and tape it on their monitor. Whatever |
| fluctuates 25 cents without taking out a previous | | | | you decide, consider analyzing your stocks' regular |
| intraday high or low would have a normal (regular) | | | | fluctuations (the regular amount between intraday |
| fluctuation of 0.36% ($0.25 divided by $70.00). Yet a | | | | swing highs and lows) and set percentage trailing |
| $10.00 stock with a normal intraday fluctuation of 8 | | | | stops accordingly. Hopefully this practice will help you |
| cents without taking out a previous intraday high or | | | | maintain more of your profits on open positions. |