- Listed: September 22, 2017 8:00 am
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Day Trading – The Art of Trading
One of the most important rules of Day Trading is: You must ALWAYS enter a “Stop Loss” order immediately after opening any new position …
This is the most important principle of the World of Day Trading (as well as that of always closing your positions the same day you opened them but we will talk about this subject in a future column).
A “STOP LOSS” command is, in French, a “TRIGGER THRESHOLD” command. This is an order that will trigger automatically in the course you specify.
This type of order can be used to RENT on long (upward) trades but it will generally be used mainly to PROTECT YOUR POSITIONS.
Very important !…
It is absolutely essential for me that you only use “MARKET” orders (at all costs) for your “STOP LOSS” orders and not “LIMIT” orders.
A “STOP LIMIT” order may NOT be executed if your “limit” is too tight or / and your price drops or climbs too quickly when your trigger price is reached …
It is therefore absolutely essential, to “guarantee” you really protect your position and your capital, to use only BUY STOP MARKET and SELL STOP MARKET (if you are interested so that I write one day a detailed column on how to use exactly all these types of orders, feel free to email me to let me know … my goal in writing these columns and thus sharing my trading experience with you is to just talk about what interests YOU most …).
If you are using a STOP LIMIT command it is a bit like you are driving in the belief that your life is protected by your seat belt but you are not really sure that it will work because you have decided to use a model that has the reputation, in some situations, not to work!
It is therefore absolutely essential and vital that you always define the maximum amount of your possible LOSSES BEFORE entering a trade.
BEFORE entering your purchase order (or short sale) on your broker’s software, you must have defined the COURSE / PRICE to which you will be ready to “take your loss” if this trade does not go in the direction you wanted.
This point / course “key” should of course not be a fixed amount as too many traders have the wrong to define it (kind “to -1 / 2 point I leave all my trades …”) but on the contrary a very precise, very logical point, based on the “life” and on the “behavior and mood” of your title that day and the previous days. You have to study its resistances, its supports, intraday, daily, its turning points, the whole numbers in the areas to which they could turn as well as many other criteria. This will be the only way to minimize the chances that your STOP LOSS order will be triggered while also limiting the amount of your loss,
This will be a point / course at which you will have the minimum chance of seeing your “STOP” hit … but also a point at which, when your “STOP” is triggered, your loss will remain minimal and quite “reasonable” .
There are ENLARGELY details to learn to optimize the use of the MARKET, LIMIT and STOP orders and it is really vital to your “survival” in stock markets that you use them very effectively …
What kind of order “STOP ”
If you trade at the RISE (” long “), as soon as the purchase of your title is confirmed by your broker, immediately enter a” SELL STOP MARKET “(SELL STOP MARKET) at a point below BELOW your purchase price. This will protect your position in case this action turns against you.
If you trade in “SHORT”, as soon as your “SHORT SELL” is confirmed by your broker, immediately enter a “BUY STOP MARKET” (PURCHASE AT THRESHOLD TRIP) to a specific point ABOVE your entry price (SELL price of the “SHORT” position you just opened) to protect this position in case this action turns against you.
It is also VERY IMPORTANT to note that you must absolutely ask the BROKER that you will consider using if the “STOP” orders are saved on their SERVERS / SOFTWARE or not. If this is not the case, it means that if your computer crashes for example just after you have entered your STOP command or you lose your Internet connection or any other “cata” of the same kind … YOUR POSITION AND YOUR CAPITAL WILL NOT BE PROTECTED AS THEY SHOULD PROVE …!
On the other hand, if you trade with a broker worthy of the name (and commissions you pay him …), he will STOP your STOP orders on his servers and as soon as your order will be entered and confirmed by their software as valid , YOU WILL BE PROTECTED, WHAT IT IS THAT PASSES on your computer, on your Internet connection, if your 4-year-old daughter suddenly disconnects your computer (like mine does me regularly “to have fun” !!!)), if your house collapses or any other “unexpected” of life. Your CAPITAL WILL BE WHEN EVEN PROTECTED and it is of course there the essential!
Example encrypted …
Now suppose, for example, that you just bought 500 shares of INTEL over $ 48.
Your ONLY PRIORITY, in the SECONDS that will follow the confirmation of your purchase order, will then have to immediately enter an order “SELL 500 INTC to trigger threshold $ 47.3 (for example)”.
As soon as this order is entered, you will be able to relax (which is very important in my personal style of Day Trading … unlike the traditional “crazy” and super stressed traders that are generally known!) that in the worst case you will lose on this trade only a maximum of about $ 0.7 (or 1.4%), according to the “slippage”
The bulk of your capital will be PROTECTED and this is your main rule of survival in the World of Trading. Without the application of this rule, any progress will be impossible or doomed anyway to failure one day or another …
The order “STOP LOSS” brings you a peace of mind very essential for me and that will allow you to eliminate the stress factor too often related to Trading. It is up to you to use it and use it effectively.
To illustrate this point, I will tell you about a little anecdote that happened to me a year, on Christmas holidays, in the Jamaican sun …
After a few days of relentless farniente, I no longer “held on” and it became urgent for me to find a way to make at least one trade.
Not having my laptop with me, the only person in the area with internet access was the manager of our hotel. After a few chats around a “strawberry Daiquiri”, he agreed to use his computer …
A quick look at the market then allows me to identify a “P2 ™” input signal on one of my favorite actions (the “P2 ™” is an input signal that I use regularly as well as all those who have been trained in my techniques).
In a few seconds, I buy 560 YAHOO …
In the second following the confirmation of execution of my purchase order, I of course reflex by a “Stop Loss” order to protect this position .
All of a sudden, less than a minute later, BOUM !!!! The computer turns off, all the lights go out, the music goes out, the whole hotel goes out! General electricity cut !!!! AIE Aie Aie !
I immediately run to see the manager (who was finishing sipping the nth Daiquiri that I had offered him to coax …) asking him what is going on.
I explain to him that I just bought, through his computer, for a big package of dollars of a title in the US markets and that panic then of course immediately! (if, on the other hand, I had not entered my “Stop Loss”, it would of course ME who would then be the most panicked of the two !!!)
Moments later, the current is restored. I reconnect and notice that my Stop Loss has not been triggered. Perfect ! Better yet, the quality of my input signal is confirmed since a few minutes later I am able to take a profit of 1.5% on this trade (in less than 9 minutes). Without hesitation, I take these few FF12000. I then join my family and the rest of the summer vacationers at the beach, a big smile on their lips … they will of course never know the great “intellectual” pleasure that I just had in addition to the financial satisfaction of having won in just a few minutes to stay a few more days in Jamaica!
So please promise me to ALWAYS enter a Stop Loss order to protect each of your positions … because you never know what might one day “cut” you from the market and control your capital! (and never forget to cancel your STOP LOSS order if you are out of a trade with a profit and your STOP order has never been triggered!)
The second most important rule in Day Trading: you must ALWAYS close all your positions before the end of the day! Learn WHY …
Phone No.: +91-9958406102
Skype : intraday.trading
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