Home
>
Stocks & Mutual Fund
>
Traders, Defend Against the Dreaded Death Spiral.

Traders, Defend Against the Dreaded Death Spiral.

It has often been said that there is only two ways to get hurt really bad on a stock trade, getting caught in a "death spiral" by not using DTM: Decisive Trade Management in the way of stop loses and having a stock halted on you. Halts you have zero control over. Death spirals are of your own making if you do not practice the use of stop loses.

Very simply stated Decisive Trade Management is keeping a stock form moving to far against you when the trade goes bad. It is not impossible to have 5 or 6 out of 10 trades lose money and still be profitable for the net of the total 10 trades. What you must do is keep your loses small and manageable and try to maximize you winners. This is done with the proper use of Trading Stops and a strict discipline in using them.

Capital Preservation

It is my firm belief that capital preservation is one of, if not the single most important thing a trader has to concentrate on. It is also my belief that it is always better to error on the side of safety or caution, in general this all comes under DTM: Decisive Trade Management.

Stop loses and the discipline to use them are part of DTM

When you enter a trade, you should have both a possible profit figure or gain that you hope to obtain and a downside loss that "you" are comfortable with if the play turns against you. Only "you" can make that decision as to what these limits are. You are the only one that can determine you risk tolerance and ability to absorb loses on an individual trade. Factors on which these limits are determined include the amount of money you have in your account, your experience and knowledge of the particular stock, news or events affecting the trade and over all market conditions and possibly others. As an example, a trader trading a $250,000 account is more then likely better able to take a $2.00/shr hit on a stock then the trader trading a $25,000 account. Some traders will consider just how well they may have done on a previous trade or number of trades and let the stock run a bit more against them if they have already made a few good trades or if they need to make up for a bad trade or two. This is very risky. I personally don't like to see risks taken in direct relation to previous trades. I would much rather see a plan that is in effect straight across the board. This goes along with my thinking that ever trader should have a trading plan and then you work your plan. (See Trading Plan: Everyone Should Have One) But human nature what it is, I'm sure the balancing trades against one another is probably being done all the time.

As a personal guide, in a market with very tight trading ranges, I'd think twice before letting a sock turn down by 50 cents or so. That is a very tight stop loss for the most part; again this can be flexible depending on your knowledge of the stock and its trading habits coupled with your own tolerance for loss. On an $85 stock, 50 cents is not all that much, but on a $9-10 stock it's a much larger percentage. Markets trading in tight ranges and lacking volatility make it much more difficult to recover loses if the follow through is just not there. If the average profit in a trade is 25-75 cents, then letting one get down on you a buck or more is going to wipe out most if not all of the previous gains on two or three plays. It can take that many trades to get back to even.

On the other hand some stocks can move $2 or $3 in a heart beat and reverse just as quickly for $2 or $3 move into the money for a total of $4-$6 or more. A $.50 stop on these will have you stopped of the trade and out of the money more often then not. I suggest that unless you are familiar with these stocks that have a history of wild swings that you avoid them until you get familiar with them.

The Trading Stop Itself

It is the opinion of many experienced traders and one that I share, that the stop order should not actually be placed. Instead you determine what price it should be and be ready to place the order if and when the trade turns against you and nears your stop price. This is referred to as "mental stops". You can even go as far as having the order form all filled out and ready to execute as the price approaches your stop price. A lot of the newer trading platforms will allow you to actually place the order in their system but it is not sent to the market for execution until the price is reached.

When you actually place the order, you lose control of you trade. Many systems do not allow you to have two orders on the same position at the same time. If you want to sell the stock you first have to cancel the stop and get confirmation back before you can place another order.

On a stock that is moving rapidly against you some traders prefer to use a market order for the quick exit. I do not like the use of market orders any under circumstances. There are too many pitfalls involved with the use of market orders. Instead I suggest you use a limit price that is significantly lower then the bid that assures you get a fill.

However you chose to exercise the use of stop loss orders is up to you but it has to be done. DTM with the use of stop orders is the only way to defend against the dreaded death spiral.

See more Trading Tips at http://www.TraderAide.com

There are many excellent books on learning to day trade. My favorites are found at http://www.TraderAide.com/books

About the Author: Floyd Snyder has been trading and investing in the stock market for three decades. He was on the forefront of the day trading craze that swept the nation back in late1990's both as a trader and as the moderator of one of the Internet's largest real time trading rooms. He is the owner of http://www.traderaide.com and Strictly Business Magazine at http://www.traderaide.com

premium house cleaning Highland Park ..

In The News:

A New Jersey teenager filed a major lawsuit against AI/Robotics Venture Strategy 3 Ltd. over ClothOff, an AI tool that created fake nude images from her social media photos.

Microsoft reports Storm-2657 cybercriminals sent phishing emails to 6,000 addresses at 25 universities to steal payroll credentials and redirect funds.

Astronomers have discovered asteroid 2025 SC79, a skyscraper-sized space rock orbiting the sun in just 128 days. the second-fastest known.

The Fox News AI Newsletter delivers the latest developments form the world of artificial intelligence, including the technology's challenges and opportunities.

A cyberattack on SimonMed Imaging exposed personal information of 1.2 million patients, including medical records, financial details and identity papers.

Spotify's managed accounts for kids under 13 now available in at least seven countries, allowing parents to filter and block explicit content and songs.

Friendly text conversations about BBQs and social events can lead to WEEX gold trading scams that target older adults with fake investment opportunities.

California company Skyeports creates self-healing glass spheres from Moon regolith that generate solar power and support plant growth for sustainable lunar living.

Cleafy researchers discover fake VPN streaming app Mobdro Pro that installs Klopatra banking Trojan, giving attackers full control over Android devices.

Police departments across the U.S. and Canada are adopting virtual reality training to better prepare officers for high-pressure, real-world situations.

House Bill 469 would prevent AI systems from owning property, serving as executives, or gaining legal personhood in Ohio under Representative Thaddeus Claggett's proposal.

Public voter records expose retirees' personal details to election scammers who create targeted cons using names, addresses, and voting history data.

Instead of fearing what comes next with artificial intelligence, think outside the box. Here are high-earning AI jobs that don't require a computer science degree.

OpenAI CEO Sam Altman says polite words like "please" and "thank you" cost millions annually, while direct prompts may improve ChatGPT accuracy by several points.

Chattee Chat and GiMe Chat exposed intimate conversations and photos, revealing users spent up to $18,000 on AI companions before the breach.

New Instagram parental controls allow families to manage teen screen time and content limits through the Family Center with stricter safety settings.

Third-party security breach at Discord exposes sensitive user information including government IDs, highlighting cybersecurity risks from external service providers.

Survey of 1,000 students shows teens using AI for personal relationships while two-thirds of parents remain unaware of their children's AI usage.

Cybersecurity experts warn about a ShadowLeak vulnerability that weaponized ChatGPT's Deep Research agent to steal personal data from Gmail accounts through hidden commands.

Tesla's Full Self-Driving system faces federal investigation following 58 reports of crashes, with six vehicles running red lights before colliding with other cars.

The Fox News AI Newsletter brings you the latest developments on artificial intelligence, with news on OpenAI moving to soon allow erotica for adult users.

Eric Schmidt alerts that hackers can reverse-engineer AI models to bypass safety measures, citing examples like the jailbroken ChatGPT variant called DAN.

Cybercriminals exploit Microsoft Teams through impersonation, malicious links and fake profiles to gather intel and deliver ransomware to personal and work devices.

Google, Dior, Allianz and dozens of other companies lost sensitive customer data in Salesforce-related breaches affecting millions of records across multiple sectors.

Apple launches iOS 26 with new Preview app that combines document editing, PDF annotation and scanning features into one streamlined iPhone experience.

Traders, Defend Against the Dreaded Death Spiral.

Stocks & Mutual Fund