With more than 400 indicators in thinkorswim learning how to set a stop loss is important, but it can be a bit overwhelming without the proper guidance on what to use. A stop loss is an order to buy or sell a stock at the market price once the stock has traded or through a specified price; also known as the stop price. If the stock reaches the stop price, the order becomes a market order and is filled at the next available market price. The order is not completed if the stock fails to reach the stop price. This article will teach you how to set up a stop loss. But before you can truly learn to do something, you have to understand what it is. Helen Keller said, “The only thing worse than being blind is having sight but no vision”.
Why Should I Use a Stop Loss Order?
Without money, you can’t enter a trade so it is important to take care of the seed that will make you grow. The goal of options trading is to protect your investment and make a profit. With that being said the best way to enter a position is to have a strategy before you enter. Think of it like this if you never went to a destination before wouldn’t you need an address to get there? So, when it comes to trading knowing your profit target and stop loss will get you to your destination; which is a profit.
Stop loss orders help you keep your cool and keep emotions out of your trades. You won’t be successful in your trades because of luck. Cutting your losses is part of being a successful day trader. You set a sensible stop loss and leave it there and go on with your trading. This way no matter what happens, protection is in place and it will ease your mind and let you focus on the other aspects such as volume and monitoring the chart.
When Should I Use a Stop Loss?
When a position you entered increases and you want to try to protect your gain should it begin to decline; a stop loss would be appropriate. When you want to buy a stock as it breaks out above a certain level, believing that it will continue to trend upwards because of the strategy you are using; a stop loss is appropriate. A stop loss helps you protect a possible gain or seek to minimize a loss. A sell stop loss is entered at a stop price below the current market price. If the stock drops to the stop price or below it, then the stop order to sell is triggered and becomes a market order to be sold at the market’s current price. This sell stop order is not guaranteed to sell near your stop price. A stop loss may also be used to buy; a buy stop order is entered at a stop price above the current market price. Pretty much keeping the stock from getting away from you as it rises.
Getting It done
Now that you know the when and the why when it comes to placing a stop loss order. It is now important to how to get it done. You take a look at past daily ranges and look at the highs and the lows of previous days and points in common. Remember that strategy is key and when it comes to stocks history has a tendency of repeating itself. Meaning that certain zones and price ranges will be re-tested which makes it a major zone. Taking the extra minutes to do a little research will be a game changer to the number of gains you can achieve.
Then on your thinkorswim platform, it just takes a click next to the price that you would like to sell and it’ll place your stop loss. You set it and forget it, literally you can walk away and once the pricing hits in that area you will hear a ding and the transaction would have been completed. I have created a demonstration for you to see how it would look on the thinkorswim platform. You see the -10 LMT this is set to sell when $20.00 profit hits. If at any point you decide you know what volume is increasing let me change my stop loss price; all you have to do is drag the stop to the next available price you chose.
Summary: How to Set Up a Stop Loss
We have now covered that, with the when and why we were able to get to the how. One of the key takeaways when it comes to stop loss orders, you need to look at the overall picture. You also learned that strategy is one of the most important things along the side of this tool to help you be successful in your trades. It is also evident that stop loss orders help keep the emotions out of your trades and allows you to focus on a smooth exit strategy. You may come to your conclusion that stop loss orders are not for you, and that is ok. But it’s better to know what is at your disposal, learn the ins and out, and then make a decision if it is for you or not.
My goal has always been to help as many day traders achieve their personal financial goals, whether they are novice traders or experienced traders. The MK VIP training has plenty of resources to help you get started on reaching your day trading goals. With my program, you can learn how to begin day trading, and you will be profitable for at least 80% if not more of your trades. You will have assistance the whole way through your training. After you graduate from the program, you have resources constantly at your disposal. I distribute articles daily to focus on different aspects of trading and more visuals to keep you constantly in the know. Just like stop loss orders, they are there for you and what you decide to do with that information is completely up to you.
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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