Tuesday, September 11, 2012

Trend is friend and stop loss the saviour



An old adage in trading is that trend is your friend. Trading in the direction of the trend is like working in the direction of gravity. If we could catch the direction right, we just sit tight. But then gravity never fails however trends do end, sooner or later. When trend reverses stop loss comes as a saviour. Stop loss minimizes the damage when the trade goes in the opposite direction of our entry. The key word here is “minimizes”. Traders must understand that having a stop loss order does not guarantee that one can avoid losses completely. Sometimes during gap openings stop loss orders would not get a fill at all and at other times, markets would move in the trade entry direction only after triggering the stop loss order and thereby making a trader miss a potential profit opportunity.

But still having a stop loss on your side is beneficial because it may take just one or two Black Swan events to wipe a trader’s entire capital if he is not using stop loss orders. So for long term survival traders should treat and respect stop loss as their savior.

 Please do remember no savior can help a trader who has no rules, no patience, and no discipline.

(Contributed by Jitender Yadav)

9 comments:

Dinesh said...

Dear Sir,

Very well explained!!!

Sometimes, market becomes favorable after hitting the stop loss. I think it is still better to take that hit rather than having no stop loss. When the loss becomes huge the only option left is to pray but then God listens only when we use the brain/intelligence provided by the God and not otherwise.

Regards,
Dinesh

Ajay Gupta said...

I m ur very big fan. Pls tell me how did u arrive 5280 nifty level as stop loss. Which chart to look at?

Akash said...

HI, SIR MY QUERY IN "INDIA VIX " INDEX AND , LINK WITH NIFTY OPTIONS, GUIDE ME.

sometimesbullsometimesbear said...

Stop loss is available only for the day. If u r carrying positions overnight how do u put a stop loss for the next day gap up or gap down?

Invariably in every stoploss article on every blog, stoploss is tom tommed as the traders most favorite weapon against loss.

But every blog fails to make a mention that stoploss is not available for overnight positions when a gap up or gap down can wipe out a huge chunk of a traders capital!!!

Why is it that brokers softwares are not being tweaked for this lacunae??? Is it deliberate???

Should positional traders not be given the facility of carrying over their stoploss along with the trade for the next day??????

Will SEBI answer????

Khush said...

Sir,

2 weeks back when the nifty made a low of 5225, it had broken ur support level of 5250. But u had mentioned on TV that there is no conviction in going short because of the absence of a big thrust in the downward direction and there is a strong chance of a big upmove coming. And the nifty now stands at 5670 after a few major global events. Could you please elaborate on the importance of a thrust move. Does is occur during the beginning/middle/end of a downtrend/uptrend?

Also is it wise to go short (even on an intra day basis after the event) if the RBI policy does not favor the markets? The question comes because we are in a strong up move and almost at the highs of the year.

Thanks.Always appreciate your advice.

raone said...

sir,
i met u at kolkata investor camp i am a big fan of urs..please give me ur blessings so that i can earn money in stock market....
jai shree krishna

Balu said...

Sir

Considering jan and february 2012 rally as uptrend, the correction after that uptrend do you see cup and handle breakout?

Regards
Balu

Dinesh Rishi said...

Sir waiting for new Post

smit said...

sir,

I have read many books on technical analysis and currently doing analysis for my own trading. I think without developing statical edge you can not earn from market consistently. Can you provide some detail about how to go about it.

Thanks,