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3 Profit Making Criteria


3. Use the Stop Loss

Anyone can buy a financial instrument; the art is knowing when to sell. One cannot rely on technical and fundamental analysis alone to cater for all eventualities. The time tested stop loss is a powerful tool.

" It means one never enters a trade without knowing the maximum possible loss in advance. " 

This is a life-line when the market moves against the trade direction. Hope is not a strategy, there is no room for guesswork and emotional decisions. A stop loss ensures capital and profits are protected in every trade. It provides confidence to let winning trades run.

The stop loss can be set at a fixed price level from trade entry or trailing at a fixed percentage from current market price.

If the trade is profitable, hang on and accumulate profits. A sudden market reversal exits the trade automatically. The position is closed and losses are cut early - no questions asked. Profits are protected and allowed to run.

It takes discipline to use a stop loss for every trade. This powerful yet simple technique grows capital. Make it a trading system rule - no exception.


4. Conclusion

Optimal management of trading capital is influenced by an individual's net worth, trading experience, risk tolerance and time horizon. Avoid emotional attachment to a position and overconfidence in yourself or the investment. The recipe for success in the markets is having a strong desire to be wealthy and the discipline to achieve it.





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