When trading, it is important to progressively reduce your risk. Knowing when to push the proverbial SELL button is crucial.
We must understand that in order to win, we need to compound our returns over time. If we don’t have good sell stops and we take bigger losses, these losses will work against us exponentially. For example, if you have a 10% stop loss, it will take 11% to get back to even. If you have a 15% loss, it will take 18% to get back to even. And if you have a 50% drawdown, it will take 100% to get back to even! Even for an experienced Trader, it could take Years to come back from a 50% drawdown!
Here are Key Insights To Consider when Raising your Stop Loss:
Timing is critical:
You need to know what your time frame is. Are you a short-term swing trader who plans to buy and hold a stock for a couple of days/week? Are you more of an Intermediate-term trader who will hold a stock for several weeks, months or close to a year? Or, are you a long-term investor who likes to buy and hold something for over a year or longer? Once you identify what your time frame is this will help dictate when you are getting in and out. Keep also in mind the following:
- Identify Your Support Levels
- Observe Behavior Your Stock Around the Key Moving Averages
- Identify Distance between entry and exit points
- Plan When You are Going To Get In and Out
- Identify entry points close to support and close to moving averages.
I like to consider both since it will solidify that exit point and a breakdown of the chart.
3. The tighter the distance between entry/exit the easier it will be to compound
Remember, you are a winner so go out and remember these key insights when raising your stop loss today!
Here are some more blog posts for you to check out:
- How to Let Your Money Work For You
- How to Be a Part-Time Trader with a Full-Time Job
- How I Changed My Outlook and Definition of Success