Archives of “stop loss” tag

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Ed Seykota’s 6 Rules from the Whipsaw Song

  
  Education
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1. Do not be overly concerned about whipsaws a good trend pays for them all.

A whipsaw is when you enter a position but get stopped out quickly when the market reverses opposite to your position.  If you are a trend trader this may happen many times in a row in a range bound market.  This can be very frustrating to a trader and it may cause them to completely change their method.  The fact is that one really good trend will pay for all of these whipsaws as long as you keep your losses small, and if you change your system you lose the benefit of that big trend.

To avoid whipsaw losses, stop trading. -Ed Seykota

2. When you catch a Trend, ride it to the end.

Your system must be able to take a position in a trending market, but then also be able to ride that trend to the end.  Most new traders will jump out of trades before they are finished trending because they are scared the market has gone too far and will take back their paper profits.  Let a trailing stop take you out of a trade when the trend is over, and only exit once you are stopped out.

“The trend is your friend except at the end where it bends.” -Ed Seykota (more…)

Trading Mantra's

  
  Education
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“Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!

“Thou Shall Not Trade Against the Trend.”

Let volatility work in your favor, not against you.

Emotions can be the enemy of the trader and investor, as fear and greed play an important part of one’s decision making process.

Portfolios heavy with underperforming stocks rarely outperform the stock market!

Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions, scale out instead.

Never let a profitable trade turn into a loss and never let an initial trading position turn into a long-term one because it is at a loss.

It’s not the ones that you sell that go higher that matters, it’s the ones you don’t sell which go lower, that do.

Don’t think you can consistently buy at the bottom nor sell at the top. This can rarely be consistently done. (more…)

Financial Suicide

  
  Education
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“Most good traders would agree that risking less than 1% of equity in a trade (where 1% is the amount you lose if your stop loss was hit) is a prudent risk. Risking between 1 and 3% gets into the gunslinging range. Risking any more than 3% is usually financial suicide, and the average trader commits financial suicide all the time without knowing it”

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