April 03, 2007 at 10:25 am | | Comments 0

Setting Stop Loss Levels and Profit Targets

The perfect entry is a lot easier to find than the perfect exit. Just look at your last few trades, because while you might be able to pick out a well-defined chart pattern to determine a trade entry, it’s never quite as easy to nail the exit. (Which is another reason that cleaner is better when it comes to charts.)

When speaking of exits, it’s important to always remember that perfection isn’t required to do well in trading. To turn steady profits in our accounts, we don’t have to sell the top. What we DO need to strive for is giving ourselves the best chance for a timely exit, win or lose.

When to Update Stops and Targets

I set key levels for my nightly swing trading candidates in the evening, including both stops and targets. The market is obviously closed, and that’s no coincidence. I’m in the right frame of mind and I’m unbiased (in the case of new positions). I am also unable to immediately act (in the case of existing positions), which removes emotion from the equation. That means I get to think through what I need to do, without the concerns or the pressure of a market which may be fast on the move!

Benefits of Evening Adjustments

Updating stop loss levels and targets in the evening (outside of market hours) can do wonders for your psyche, which in turn can do wonders for your trading. You make your decisions in a level-headed state of mind, you set your conditional orders, and you let your game plan play out. Setting my stops and targets outside of market hours has made the trading sessions much more relaxing for me, without diminishing the importance of my trading.

Now, I’m certainly not saying that your trades shouldn’t be important to you. They should be – it’s your money on the line! A subscriber of my service recently mentioned this to me via email, noting that they “are always worried” about their positions. Put it this way…..while some level of interest/concern in your trades is healthy, if you’re too anxious about it, the trade is probably too big. That is another topic altogether, but the point I’m trying to make is that if you feel like your decision-making could stand some improvement, consider setting your key levels outside of market hours. You’ll find your level of stress is lowered and you’ll have greater confidence in your trades because your job during the regular session is purely about executions – not fretting over when to buy or sell!

Jeff White
President, The Stock Bandit, Inc.

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

Sorry, comments for this entry are closed at this time.