Money Management  |  FEB 2006

Sell Using Stops by Thomas Bulkowski

Stocks & Commodities V. 24:2 (28-32): Sell Using Stops by Thomas Bulkowski The use of stops separates the professional trader from the amateur investor. It doesn’t matter what price you paid for a stock. What matters most is what you sell it for. Do you spend more time researching a buy candidate than you do a sell candidate? That’s not necessarily a bad thing. I know I’ve turned on my computer only to discover, “Hey! I sold a stock!” The easiest way to sell a stock is to use a stop. It’s painless. Once the stop is in place, it’s almost worryfree. It’ll do its job regardless of whether your computer crashes, your neighbor cuts your phone line, or even if you forget to check in while on vacation. If you’re not making money in today’s markets, one reason may be that you’re not using stops. Why risk an immediate loss when you can hold out for a larger one? That’s how amateurs approach trading. It’s also why so many seem to lose so much. Stop-loss orders can help change that. THE STOP Place a stop-loss order below the current market price. When the stock reaches or trades below the stop, the stop order becomes a market order. In a fast-moving market or a thinly traded stock, you may be stopped out for more than you imagined. The stock may gap open lower, say by 30%, taking you out of the game for a hefty loss. To avoid that, buy stocks that only go up. Of course, that’s like saying the best cure for insomnia is to get a little sleep.

by Thomas Bulkowski