| In "Profitable Stock Trading - 5 Rules To Trade By" | | | | in Waikiki. |
| we discussed the first five rules that will help you | | | | Rule 8: use trailing sell stop orders to protect profits. |
| gain stock market trading success. Here we finish up | | | | Remember, we are trading stocks, not buying and |
| with the final five rules. | | | | holding them for years. This means we will sell some |
| When we examine our stock charts (a stock trading | | | | very good stocks once our profit goals are met, |
| technique, not a rule, thus a discussion for future | | | | then possibly watch them go higher, maybe even |
| articles), we'll pick a price at which we will place a sell | | | | much higher. If we absolutely love a stock and |
| stop order as soon as our buy order is executed. A | | | | cannot stand the thought of not owning it, we can |
| sell stop order (sometimes called a "stop loss") is | | | | establish a core long-term position then trade an |
| triggered when the price falls to a certain level. When | | | | additional amount of shares (our "trading" position), |
| the price is hit, a market order (it can be a stop limit | | | | giving us the best of both worlds. |
| order, but that's also for a later discussion) is | | | | Rule 9: when your profit goals for a given trade are |
| automatically placed to sell your stock. The idea is | | | | met, sell the stock, regardless of its presumed |
| that if a stock starts to trend down and hits certain | | | | long-term prospects. |
| key price factors, we need to get out to prevent | | | | We hope to get very rich and be able to trade large |
| further loss. | | | | stock positions. Stock prices rise and fall for one |
| Rule 6: always use sell stop orders to protect | | | | reason only, supply and demand. If too many people |
| yourself from devastating price declines. | | | | want to sell a stock (more sellers than buyers - a |
| If we get stopped out of a stock, we should not | | | | large supply), the price goes down. If too many want |
| repurchase it for some number of trading days. This | | | | to buy it (more buyers than sellers - a large demand), |
| prevents us from jumping back into a stock we have | | | | then prices go up. In either situation, we need to be |
| "fallen in love with" too quickly after getting stopped | | | | able to move fast and either establish or get out of |
| out when our emotions tell us we "should have | | | | a position quickly. That requires that the stock trades |
| canceled that stop order" (almost always a bad idea). | | | | sufficient volume to allow us to execute our |
| Jumping back into a stock we were just stopped out | | | | transaction without our order causing a major price |
| of does work once in a while, but probably 90% of | | | | move against us. We need to know the average |
| the time we get stopped out, the price decline is not | | | | stock volume for at least the 10 trading days prior to |
| over. In fact, often it is just starting. Take the time | | | | our buy date. |
| to cool down and re-evaluate the stock | | | | Rule 10: the average daily trading volume for the 10 |
| unemotionally before making a decision to buy it | | | | trading days prior to our buy date should be at least |
| back. | | | | 100,000 shares. |
| Rule 7: you cannot buy a stock you were stopped | | | | There we have it, 10 trading rules that will drastically |
| out of for 10 trading days. | | | | improve our trading profitability. There are many |
| If a stock has gone up in price more than expected | | | | other rules that we could discuss, but if you make |
| or is in a parabolic rise, we should cancel our static sell | | | | more than 10 they are too hard to follow and |
| stop order and place trailing sell stop orders to | | | | become more harmful than helpful. Also, these are |
| protect from price reversals. Trailing stop orders set | | | | rules which only require discipline, not skill, to apply. |
| a price a certain dollar or percentage amount under | | | | They are not trading techniques, which are in a whole |
| the current stock price. The sell stop trigger price | | | | different category and require skill and judgement to |
| increases as the stock price goes up. It does not | | | | effectively buy and sell stocks at the optimal time |
| decrease as the stock price comes down. So, if a | | | | and price. Stock trading techniques will be discussed in |
| stock reverses its trend, our position will automatically | | | | future articles. |
| be sold while we are sunning ourselves on the beach | | | | |