Article Worth Reading

L

Luckytrader

Member
#1
#1
Articles Worth Reading

Re-entering the TREND
by Bryce Gilmore of Bryce Gilmore & Associates Pty Ltd*

Years ago, when I began trading, I was told the smart thing to do was to buy low and sell high.

Well, that is easier said than done, as I found out, because it is not that often that markets make extreme lows or highs that are clear-cut events.

Then, I heard that good traders do not care about picking tops or bottoms, so I adopted a philosophy of buying into weakness or selling into strength.

So, you can understand my point: When a general trend is going up, and it corrects, it is showing weakness. The idea is to find the level of support that price action can go to and still resume the original trend.

Over the years, I watched all sorts of market patterns, and the truth only became clear to me when I cut them down to very short-term events.

Here is one example of the market being a buy on weakness when the larger-degree trend was up at the time. It is a 5-minute time frame in the ES (S&P 500) during which the re-entry buy price came in when the market corrected at an exactly equal price to the preceding correction in the wave series.

Now, this is a regular thing that happens in the ES market because there are so many Elliott Wave followers.

It is just something you should be aware of as a trader, so you can monitor the market in the future for similar situations. They do repeat nearly every day in the intraday trends.

The chart in this article was just another instance of a trade possibility I told our trading room guys about in advance of its becoming a trade.

It doesnt cost you anything to look and learn, so I hope this is of interest to you.

Regards,
Luckytrader
 
Last edited:
L

Luckytrader

Member
#2
#2
Don't Forget Your Umbrella
By: Kevin Butler

The stock market can be a stormy place. At any given moment, the market is raining on someones parade! Sometimes the rain is just a slight drizzle, but at other times it can be a torrential downpour.

Yes the market can also be bright and sunny, with the birds singing and a clear sky as far as the eye can see. At times, all can seem right with the world.

But it doesnt take much for storm clouds to form on Wall Street!

In case you havent figured it out just yet, when you're losing money... its raining!

Sometimes the losses happen gradually, with plenty of time to examine, ponder and decide upon the right course of action.

These are the slight drizzles.

But just as frequently it seems, the losses happen rapidly, with no time to act. These are the downpours.

The good news is, you can have protection from the rain!

I am constantly amazed at how many people trade stocks without the use of protection.

Your umbrella from the wicked weather on Wall Street is called a stop loss.

It is the ONLY direct form of protection you have and you should use it on EVERY, let me repeat...

~EVERY~ trade.

A stop loss helps to ensure that a small loss does not become a large loss.

How important is it?

Simple... without it, you will not become a successful trader.


What is a stop loss?

It is an order to either buy or sell, whichever is required to get you out of a trade position, BUT ONLY when a certain price is reached or exceeded.

A stop loss order (also just called a stop or stop order), is placed BEFORE the rain starts to fall.

Lets go through an example and see how this important tool works to minimize your risk.

Suppose you just bought 100 shares of ABC Company at $10 per share. Naturally you expect the price to rise.

But what if it doesnt?

A lot of people think theyll just review their position every morning and then, if the stock starts to fall, get out. But a stock can travel a LONG distance in a single trading day.

You could lose 50% or more within 24 hours.

By the time you are able to act, it may well be too late.

Well... not you, because youll have a stop in place.

Right after you received a confirmation from your broker that you purchased 100 shares of ABC Company at $10 per share, you ** immediately ** placed a stop order to sell those 100 shares at $9.

Remember that a stop is an order to either buy or sell, whichever is required to get you out of the position.

Since you entered the position by buying 100 shares, your stop will be an order to sell those 100 shares.

Thats called a sell stop.

If the stock rises in price, as you hope it does, then your stop level of $9 will not be touched and youll enjoy a trade that is moving for you.

BUT...

... if the price of the stock drops to $9, your sell order will AUTOMATICALLY come to life.

Thats one of the beauties of a stop, you dont have to do anything!

It can become activated while youre at work or play, without you even knowing that it is happening. It automatically activates when your stop level is touched by the stock price.

So while many others who entered the same trade as you discover that they have lost 50% overnight, youll discover that your stop was activated and got you out at or near $9.

As long as the stock moves in your favor, your stop is never touched.

But when a trade moves against you, thats when your stop becomes your very best friend.

A stop can be placed on both long and short trades. And as I said before, you should ALWAYS have a stop in place! It is the only direct protection from loss youll find in the market.


~ USE IT! ~

But understand that while a stop is the only form of direct loss protection you have, it isnt a guarantee - you can still get wet even while using an umbrella.

There are situations where you will not be able to exit your position exactly at your stop level. Remember I said that the stop order is activated when your stop level is reached or exceeded, but that doesnt mean youll be able to get out at that price.

For example, the order to sell may become activated when the price drops to $9, but your shares may not be sold until the price falls to $8.50. There must a buyer for your shares in order for the transaction to occur.

And that buyer may not be found until the price has fallen below your stop level.

Additionally, sometimes a stock will gap in price overnight. This means that the stock opens either higher or lower than it closed the day before.

If your stock closed at $10 yesterday, it may have opened at $8.50 this morning. Thats a gap down of $1.50 overnight.

Naturally your stop at $9 will automatically activate at the opening, but the price is already below the stop level.

Thankfully, these situations do not occur that frequently. But if you plan on trading for any serious amount of time, IT WILL happen to YOU.

But think of how you could end up in these situations WITHOUT a stop in place!!!

The point is... while a stop isnt perfect protection; it is your only protection. Use it on every trade.

I promise you, guaranteed... youll be glad you did!

Regards,
Luckytrader.
 
R

RAMDAS

Active Member
#5
#5
rado said:
Nice article, Lucky

Without stop loss you will never become a successful trader.

Thanks.
Rado.
Click to expand...
Flip side is..when you place stop loss order..you are willing to sell at lower level..and market go there to collect those orders..and then rise.
Mental stop is different and hard stop is different.

Good luck
Ramdas
 
L

Luckytrader

Member
#7
#7
boopathy said:
good one...
How does a "buy stop" work?? can you please explain..
Click to expand...
An order to buy a security which is entered at a price above the current offering price. It is triggered when the market price touches or goes through the buy stop price.

People using a buy stop hope to gain if momentum gains on a particular stock. If the price exceeds the price you have set, it will automatically trigger a market order.
 
L

Luckytrader

Member
#8
#8
RAMDAS said:
Flip side is..when you place stop loss order..you are willing to sell at lower level..and market go there to collect those orders..and then rise.
Mental stop is different and hard stop is different.
Click to expand...
Setting protective stops is an essential ingredient in any leveraged trading activity.

This process can be done physically, by actually placing them in advance with your broker, or mentally, by deciding where a stop should be executed. Physically placing a stop may involve setting an alert with your software and watching the price action very closely. On the other hand, if you set the stop mentally, you may be focusing on one specific market and can immediately execute an order the moment the stop is reached. It does not really matter.

Whichever method you use, the important point is to make sure, when you enter a trade, you know exactly where you are going to get out if things go against you. As time progresses and prices change, the level of the stop is also altered. If you are trading more than one contract, or several hundred shares, there is no reason why you cannot split the stop at different price levels.

There are several advantages to placing stops. First, by the very nature of establishing a stop level that is either physically or mentally entered, you are preparing yourself for the worst.

Important question is you must know

Where to Place Stops?

Regards,
Luckytrader
 
S

sharantaka

Member
#9
#9
Luckytrader said:
Don't Forget Your Umbrella
By: Kevin Butler

The stock market can be a stormy place. At any given moment, the market is raining on someones parade! Sometimes the rain is just a slight drizzle, but at other times it can be a torrential downpour.

Yes the market can also be bright and sunny, with the birds singing and a clear sky as far as the eye can see. At times, all can seem right with the world.

But it doesnt take much for storm clouds to form on Wall Street!

In case you havent figured it out just yet, when you're losing money... its raining!

Sometimes the losses happen gradually, with plenty of time to examine, ponder and decide upon the right course of action.

These are the slight drizzles.

But just as frequently it seems, the losses happen rapidly, with no time to act. These are the downpours.

The good news is, you can have protection from the rain!

I am constantly amazed at how many people trade stocks without the use of protection.

Your umbrella from the wicked weather on Wall Street is called a stop loss.

It is the ONLY direct form of protection you have and you should use it on EVERY, let me repeat...

~EVERY~ trade.

A stop loss helps to ensure that a small loss does not become a large loss.

How important is it?

Simple... without it, you will not become a successful trader.


What is a stop loss?

It is an order to either buy or sell, whichever is required to get you out of a trade position, BUT ONLY when a certain price is reached or exceeded.

A stop loss order (also just called a stop or stop order), is placed BEFORE the rain starts to fall.

Lets go through an example and see how this important tool works to minimize your risk.

Suppose you just bought 100 shares of ABC Company at $10 per share. Naturally you expect the price to rise.

But what if it doesnt?

A lot of people think theyll just review their position every morning and then, if the stock starts to fall, get out. But a stock can travel a LONG distance in a single trading day.

You could lose 50% or more within 24 hours.

By the time you are able to act, it may well be too late.

Well... not you, because youll have a stop in place.

Right after you received a confirmation from your broker that you purchased 100 shares of ABC Company at $10 per share, you ** immediately ** placed a stop order to sell those 100 shares at $9.

Remember that a stop is an order to either buy or sell, whichever is required to get you out of the position.

Since you entered the position by buying 100 shares, your stop will be an order to sell those 100 shares.

Thats called a sell stop.

If the stock rises in price, as you hope it does, then your stop level of $9 will not be touched and youll enjoy a trade that is moving for you.

BUT...

... if the price of the stock drops to $9, your sell order will AUTOMATICALLY come to life.

Thats one of the beauties of a stop, you dont have to do anything!

It can become activated while youre at work or play, without you even knowing that it is happening. It automatically activates when your stop level is touched by the stock price.

So while many others who entered the same trade as you discover that they have lost 50% overnight, youll discover that your stop was activated and got you out at or near $9.

As long as the stock moves in your favor, your stop is never touched.

But when a trade moves against you, thats when your stop becomes your very best friend.

A stop can be placed on both long and short trades. And as I said before, you should ALWAYS have a stop in place! It is the only direct protection from loss youll find in the market.


~ USE IT! ~

But understand that while a stop is the only form of direct loss protection you have, it isnt a guarantee - you can still get wet even while using an umbrella.

There are situations where you will not be able to exit your position exactly at your stop level. Remember I said that the stop order is activated when your stop level is reached or exceeded, but that doesnt mean youll be able to get out at that price.

For example, the order to sell may become activated when the price drops to $9, but your shares may not be sold until the price falls to $8.50. There must a buyer for your shares in order for the transaction to occur.

And that buyer may not be found until the price has fallen below your stop level.

Additionally, sometimes a stock will gap in price overnight. This means that the stock opens either higher or lower than it closed the day before.

If your stock closed at $10 yesterday, it may have opened at $8.50 this morning. Thats a gap down of $1.50 overnight.

Naturally your stop at $9 will automatically activate at the opening, but the price is already below the stop level.

Thankfully, these situations do not occur that frequently. But if you plan on trading for any serious amount of time, IT WILL happen to YOU.

But think of how you could end up in these situations WITHOUT a stop in place!!!

The point is... while a stop isnt perfect protection; it is your only protection. Use it on every trade.

I promise you, guaranteed... youll be glad you did!

Regards,
Luckytrader.
Click to expand...
Hello Lucky trader,
Thank you very much for this wonderful article about stop loss. Can I ask you a small doubt I have about stop losses, As you know if you are buying the stock on delivery then it is T+3 transaction, meaning it takes at least three days for the stock to come into our demat account. If your stop is hit within these three days, then we don't have the delivery in case of sell stop.
How to deal with a situation like this, please advise
Thanks
sharantaka
 
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