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In our stock and index trading we always use an initial stop loss point.
The stop-loss point is simply a fixed price at which we will EXIT our position to keep any loss on a trade to an absolute minimum. More importantly, we allow ourselves the opportunity to 're-enter' the stock even after a stop loss is hit.
The process is simple, but very effective and allows you to keep any losses to a minimum, while always keeping the opportunity open to capture the major swings.
So, here's how it works - pay close attention and read this a few times - a full working example will also follow in a few moments to make this absolutely clear...
Firstly, the stop-loss point is placed at the "LOWEST POINT MINUS ONE CENT" of the day that the trend index in the stock changed to orange... So, when you find a stock you want to trade [in other words, a stock which has a gray/gray/orange triple-light sequence], click on it, and note down the LOWEST point the stock reached on that last day, then 'MINUS ONE CENT'...
Imagine [as an example] the stock closed at $32.80, and the LOWEST point in the stock in that day was $32.55. Now, mark your stop-loss point as the LOW PRICE MINUS ONE CENT [or one penny].
In this example, the LOW point was $32.55, so the stop-loss point would be $32.54.
Now, when you enter the stock the next day [at $32.80], always have this rule - to EXIT the stock if it drops down to $32.54. If your stop loss is hit, then you would exit the position - but MOST IMPORTANTLY, you may re-enter the stock again, so do not think the swing-opportunity has gone.
This is the best part...
If your stop-loss point is triggered [ie., the stock hits the stop loss point] and you have exited the trade, then keep your eye on the trend index...
If the trend index continues to stay ORANGE, then you may re-enter the stock if the price climbs again to your original BUY point [$32.80]
Here's a complete example to make this process completely clear...
Imagine, you log in to the insight screen one evening, and see that there is an opportunity in AMAZON stock... The main index trend is BLUE, and the stock box shows a perfect Gray/Gray/Orange sequence in this stock.
You click on this stock, and up pops the chart - look closely at the last bar in the chart... hover your mouse over it, and note down the days LOW in the stock. Imagine the LOW point in AMAZON for the day was $27.43
You would buy the stock the next day
at the opening price - assume this to be $27.75
You would place your stop-loss point at the LOW MINUS ONE CENT:
LOW minus 1 cent = 27.43 MINUS 0.01 = 27.42
Now, imagine the stock moves down after you buy at 27.75. You wait, and only exit if the stop loss is triggered at 27.42. Assume the stop loss is triggered a day or two later, and you are out with a small loss.
Now, often in discussing stocks with fellow traders, it seems stocks seem to mysteriously turn around just as soon as a stop loss is triggered. This is why we developed this technique to 're-enter' a stock even if we are stopped out...
Focus on the AMAZON trend index. If the trend index remains ORANGE, then you may re-enter the stock if it hits the original BUY point again at 27.75
If the trend index turns to GRAY, then discard the opportunity, take the original small loss and move on to new opportunities. But, if the trend index remains ORANGE, then wait for the stock to climb back up to 27.75 - you can re-enter there.
These are very simple, absolute rules.
To re-cap...
Enter the stock as normal [main trend index BLUE and triple light sequence is gray/gray/orange], then place the stop-loss at the LOW minus ONE CENT point.
If the stop loss is hit, then exit the position taking a small loss. After you exit at the stop-loss, simply watch the trend index...
If the trend index stays ORANGE, then you may re enter at the original entry price. On the other hand, if the trend index turns GRAY then forget the re entry, discard any re-entry opportunities, and move to new stocks.
You will find, through experiencing these trades [real or imaginary] using this risk-control method, that the system is beautifully simple yet effective, in keeping any losses to a minimum, but at the same time [more crucially] ensuring you do not miss out on any major swings where the significant profits are achieved.
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