Hey everyone, I know things are messy and a little scary out there.
My best advice right now is not to panic, keep a clear mindset, and, as I said yesterday, let the charts lead your trades.
And hey, we still have plenty of day trade setups ripe for the picking every single morning.
To know how to trade them the right way, join me during my Pre-Market Prep.
I go live every day at 8:30 AM ET to show you all the patterns I see and how to play them.
Learn more about Pre-Market Prep right here.
That said, no matter how great a setup is, every trader must know how to manage risk properly in this unpredictable market environment.
One of the most crucial elements of risk management is the stop-loss…
And right now, I urge you to keep them tight.
Why?
These days, the market can change its tune in an instant. It could reverse course very fast if there’s a headline it doesn’t like.
And if your stock gets swept away by that wave, you need to be able to exit quickly.
Table of Contents
What is a Stop-Loss? And Why Does It Matter?
One of the biggest benefits of using a stop-loss? It saves you money. It protects your assets. Period.
A stop-loss is just part of the game. Yes, you’re going to have losing trades. That’s the plain and simple truth.
I don’t care if you’re a billionaire hedge fund manager, you will take losses. The key is pre-planning your risk.
This is where a lot of newer traders mess up. They jump into a trade thinking only about the upside…
But they never stop to ask, “What happens if this trade doesn’t work?”
So here’s what I want you to do: Before you enter a trade, know exactly where you’re cutting it.
- It could be a per-share amount.
- It could be a percentage loss.
- It could be a dollar amount.
Maybe you’re risking $50 on the trade, aiming to make $250 or $500. Whatever it is, define that stop before you enter.
The “before” part is so important. I say it all the time.
Before you hit the “buy” button, set that stop-loss order. That way, if the stock drops, you’re out…no second-guessing, no hesitation.
Earlier, I suggested using tight stops given the market’s current uncertainty.
For example, if your usual acceptable percentage loss is 5%, perhaps adjust it to 3%.
Whether it’s a per-share amount, percentage loss, or a dollar amount, make it smaller than you normally would.
Remember, I’m here to keep you safe, and this is one of the best ways to do that.
The Power of a Trailing Stop
This is a great tool for swing traders and part-time investors…
And it’s also a smart strategy in this low-visibility market environment.
You can use a trailing stop to automate your exit.
Let’s say you put on a trade in the morning, but you have to step away. A trailing stop moves up by itself as the stock moves up.
That way, if you’re in a strong, uptrending stock and it pulls back by a set percentage or dollar amount, you’re automatically taken out, securing your gains.
Follow This Rule for Stops
Only trade liquid stocks.
I can’t stress this enough.
If you’re in an illiquid stock and it starts dropping fast, your stop-loss might not trigger. If there aren’t enough buyers, you could blow right through your stop, and then you’re stuck.
I’ve been there. It’s painful. I don’t want you to go through it.
As a rule of thumb, avoid stocks trading less than a million shares per day. That’s the bare minimum.
In fact, that’s one of the criteria I use for my daily scans: Volume greater than 10 million shares a day.
So, how do I screen for volume?
With the StocksToTrade platform.
It has tons of built-in scans, charting, real-time data, technical indicators, and more…everything you need to stay ahead of the game.
AND right now, you can get two weeks of both the STT platform and our Breaking News Chat service for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
If you’re in a trade with decent liquidity, and it pulls hard to your stop, you can actually get out.
But in a low liquidity position, you can get stuck in a death spiral where you’re the only one trading the stock.
My Final Thoughts…
No matter what kind of market we’re in, always use a stop…and set it before you trade. And right now, I advise that you tighten up your usual level.
If you’re trading without a stop, you’re not trading, you’re gambling.
Once you set that stop, stick to it. No exceptions.
Finally, trade only liquid stocks. My rule is greater than 10 million.
As always, stay disciplined, stay focused, and keep a level head.
For more mentorship on trading smart in this market environment, join my StocksToTrade Advisory service.
You’ll get a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great weekend, everyone. See you back here on Monday.
Tim Bohen
Lead Trainer, StocksToTrade
I hope you’ll be around on Thursday, March 20th, at Noon ET…
See, I’ve discovered a trading phenomenon that has produced massive gains during a specific afternoon window.
This is just some of what I’ve seen so far…
93% with SOPA
140% with CPIX
99% with MGOL
And there are many more…
This market anomaly will trigger again on March 20th. That’s why you need to join me at noon so I can prepare you for what’s to come.
I promise you, you don’t want to miss this!