Protecting the Downside in Trading

This week’s Free Newsletter over at TheStockBandit.com discusses the topic of Protecting the Downside in Trading.

Every one of us are at times driven by the big emotions that trading the markets inevitably brings, but if we do our job and protect the downside first, the other things will take care of themselves.

When I was first starting to trade, I would always look at how much I could make on a trade. It didn’t take long to realize I needed a good exit plan, so my mentality shifted. Now I start every trade with a look at the potential for downside, and I structure my trades accordingly. So for my thoughts on the subject, stop by and check out the Free Newsletter at TheStockBandit.com.

By the way, you can sign up for the free newsletter on the Free Newsletter page at TheStockBandit.com and we’ll notify you every time one is published. An opt-in form is provided at the top of the page which puts you in full control of your email subscription at all times.

Trade well this week!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service
www.TheStockBandit.com

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

Vicente

I think that the applications of derivatives in the form of options is a venue that should be greatly explored when it comes to protecting your capital from a down side in any trade that will involve more than a single day. Protective puts, married puts, and collars offer good protection.
TheStockBandit

When it comes to hedging, you are exactly right Vicente. However, I am mostly referring to just the discipline needed to cut a trade when it is time. Most inexperienced traders fail to set a “get-out” point, but if they would do that then they’d see much better results.

Jeff
http://www.thestockbandit.net/2008/10/14/4-trading-goals-you-can-set-right-now/ 4 Trading Goals You Can Set Right Now | TheStockBandit.net

[...] Making sure to update your thresholds either on the weekend or on Monday morning is the best way to stay on top of it. Doing so will ensure that you protect the downside during a tough stretch (as the R dollar-equivalent is reduced), while also maximizing profitability during good stretches of trading (as the R dollar-equivalent increases). The point is to trade smaller when doing poorly, and trade larger when doing well. [...]
http://www.thestockbandit.net/2009/04/07/the-importance-of-losing-small/ The Importance of Losing Small | TheStockBandit.net

[...] bump or bruise is far easier to overcome than the occasional amputation. The point is this – protecting the downside offers you a safety net to fall into. Why not use [...]