A better stop

BellaMike Bellafiore's (Bella's) Blogs7 Comments

A frustrated new trader stepped into my office to discuss a few specific trades from yesterday. He got wicked out of a good short in CVC and a few longs in C into the close. He was looking for some guidance.

First there were a lot of things this new trader did well. He was in the right stocks. He was trading with the direction of the market. He was controlling his risk. He was on the right side of the stocks. He had really just one issue to fix, which was a better stop. And this is not a big problem to fix.

The market’s volatility is unusually high. This means you need to adjust your stops. You need to give them a little more room. Also you can give them more room responsibility because your gains will be larger than normal due to the increased movement. Further for a market that is very weak or a stock that is very weak you can give your stops a little more room. Again your reward will be greater if you are on the right side so this allows for a bigger stop.

The new trader was short 64c in CVC with a stop at 66c. When I love a position or the market is more volatile I will adjust my stop to something like, if CVC is holding the bid above 70c or ticks 76c. I concentrate more on the stock holding clearly above the resistance level before I cover. This is the better stop.

One Good Trade

7 Comments on “A better stop”

  1. Why didn’t he try and short again after the second stop-out? It appears his risk/reward ratio was still in his favor to try the short play again. If anything, one of the major points you guys have taught me is to never give up on a favorable R:R trade. Whether if that means expanding your stops or having small stops w/ the intention to jump back in if price looks good. 

  2. 2 cent stop? he better be mentally prepared to take five stop outs in a row and then be able to manage a working trade and hold for 30 cents

  3.  how sweet.  how about showing the trades where your boys were torn a new one?

  4. we learn less from those types of trades.  Besides, if youtrade well, you never get torn up, you only receive small losses- and those make for boring stories.

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