The Use of Stop Orders

[Mina]

Just from personal experience, I think it is always wise to actually place stop orders rather than using so-called 'mental stops'. If you place them prudently, then getting 'stopped out' prematurely should not really be a concern. With respect to managing risk, there is no substitute for a stop order to maintain some control. Granted, there can be different levels of slippage, and sometimes quite a bit of slippage when there are extreme conditions causing high volatility and a concomittant drop in liquidity. Still, better to get out as soon as the market goes against a position, rather than wait for it to turn really ugly. As far as trailing stops to lock in profit or actually exit a position, I have had good results by placing buy stops a couple of tics below support and sell stops a couple of tics above resistance. Of course, that is a general rule of thumb. If I see the price trending sharply up or down on an intraday swing, I might just follow it by some predetermined number of tics, say five or seven for example.

 

[RUBI DUTTA]

[RUBI DUTTA]Just from personal experience, I think it is always wise to actually place stop orders rather than using so-called 'mental stops'. If you place them prudently, then getting 'stopped out' prematurely should not really be a concern. With respect to managing risk, there is no substitute for a stop order to maintain some control. Granted, there can be different levels of slippage, and sometimes quite a bit of slippage when there are extreme conditions causing high volatility and a concomittant drop in liquidity. Still, better to get out as soon as the market goes against a position, rather than wait for it to turn really ugly. As far as trailing stops to lock in profit or actually exit a position, I have had good results by placing buy stops a couple of tics below support and sell stops a couple of tics above resistance. Of course, that is a general rule of thumb. If I see the price trending sharply up or down on an intraday swing, I might just follow it by some predetermined number of tics, say five or seven for example.[/QU OTE]