My top priority when advising and teaching my subscribers is to keep you trading safely.
I want you to stay alive so you can continue to grow your account….
To achieve this, you must properly manage your risk, make smart decisions, and have a solid trading plan.
By practicing the above, you stay around long enough to continue gaining knowledge and eventually become really successful.
My success depends on your success. I’m here to help you master trading, whether day trading or swing trading….
But your success won’t happen overnight, or in a week, or even a few weeks.
You have to stay disciplined so you can survive and learn everything I have to teach you.
And by the way, if swing trading is your thing, check out our IRIS AI bot program that does all the heavy lifting for swing traders.
One way I try to ensure that you don’t blow up in the market is by being conservative.
I constantly get yelled at, no kidding, for my cautious trading advice.
I call these people who criticize my advice “gunslingers”…
Gunslingers think they’re cool, they talk a bunch of crap, and they berate my trading style.
And then they disappear!
Typically they disappear because they chase down every shiny thing, hold on to losing trades, and trade too aggressively…
In fact, they do all the things I describe in this blog post, and then they lose everything.
Just so you know, everything I just said is fresh in my mind because I talked about it during my Premarket Prep yesterday.
During Premarket Prep, in addition to preparing my subscribers for the trading day ahead, I like to remind everyone that I’m here to protect them in the market.
And one of the best ways for me to do that, especially for newer traders, is by giving you tight stop-losses.
The people that stick to them thank me in the end.
What’s a Stop-Loss Anyway?
I’ve said it a million times and I’ll keep saying it—cutting losses quickly is key to staying in the game.
But what does it really mean to set a stop-loss, and how do you stick to it?
A stop-loss order is simple—it exits your position if the stock hits a certain price. That price is the point where you decide enough is enough and cut your losses.
When the stock hits that level, your market order is automatically filled. It’s a way to take emotions out of the equation.
Trust me, and I can tell you from experience, it’s very easy to convince yourself that the trade will turn around, and then before you know it, you’re sitting on a bigger loss.
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You’re Gonna Have Losses So Learn How to Manage Them
Losses aren’t fun but they’re part of trading, even for the best traders out there. I mean, it’s statistically impossible for someone to have a 100% win rate. If you believe it is possible, you shouldn’t be trading.
Every trader needs to mentally prepare for losses because they will happen. This isn’t negative thinking; it’s just being realistic.
A lot of new traders ignore or forget the importance of protecting their capital, especially when they’re trading with a small account. But if you’re not mindful of this, you can blow up your account faster than you think.
If that happens, you’re out of the game, and like I mentioned above, you’ll have no chance to learn all the strategies I have to teach you.
So, every time you enter a trade, you need to have a stop-loss in mind. It’s a key part of preserving your capital and staying alive in the wild west of trading.
The Mechanics of a Stop-Loss
Here’s how it works: the “stop” is your trigger price. For a long position, the stop price is below your buy price. For a short position, it’s above your sell price.
When the stock hits your stop price, a stop-loss order becomes a market order. In the case of a long position, that means your shares are ready to be sold at the best available price.
Remember, this ensures that your trade will be executed, but it does not guarantee it will be sold at a specific price.
Trailing Stop-Loss Order
A trailing stop-loss is like a regular stop-loss, but it moves with the stock’s highest price. As the stock makes new highs, the trailing stop moves up with it.
You decide how far below the peak price you’ll allow the stock to fall—either by a set percentage or a specific dollar amount.
When the stock hits this trailing stop, a market order is triggered. This is an excellent tool for swing traders or people who don’t want to be constantly monitoring their trades.
Risk vs. Reward
Setting your stop too close to your entry price can get you shaken out by normal volatility. Setting it too far means risking more than necessary. So how do you find the sweet spot?
It comes down to risk vs. reward. My preference is a risk-reward ratio of 3 to 1…
And yes, that’s where the gunslingers think I’m playing it too safe.
Here’s the calculation:
Reward Amount / Risk Amount = Risk-Reward Ratio
Reward = Price target – Entry Price
Risk = Entry Price – Stop-Loss
For example, if you’re buying a stock for $10 per share and think it can go to $13, you’ll set a stop loss at $9.
Every trader that uses a stop-loss strategy needs a robust trading platform to monitor their positions, set alerts, create charts, and more.
My top choice is StocksToTrade and I use it every single day.
It has the trading indicators, dynamic charts, and stock screening capabilities that traders like me look for in a platform. It also has a selection of add-on alerts services, so you can stay ahead of the curve.
Grab your 14-day StocksToTrade trial today — it’s only $7!
My Final Thoughts…
Stop-loss orders are an essential tool in a trader’s arsenal. They help you manage your risk, keep your emotions in check, and enforce discipline.
While there are multiple approaches for setting stop-losses, risk management forms the basis.
Join my StocksToTrade Advisory service to learn how to use tools like stop-losses to enhance your trading game. You’ll also get three weekly videos, a monthly newsletter with my top picks, and more.
With STT Advisory, I’ll teach you how to play it safe in the trading game so you can keep trading, grow your account, and master as many strategies as possible.
Learn more about StockstoTrade Advisory here.
And don’t forget to check out my blog and SteadyTrade podcast for more resources and information.
Remember, the market is a battlefield and many traders lose. But with the right education and tools, you can put yourself in the winners circle.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
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