Category: MarketClub Techniques, Tips & Talk

In this blog posting we are going to focus on STOPS!!!!!

Stops are enormously important part of a traders arsenal of trading tools. Some traders confirm that stops are the most important part of their trading armour.

So here are three ways to use stops to protect your capital and lock in profits from a trade. These three money management techniques can be used in stock, futures and forex trading. The important rule is that you do use a real stop in the marketplace. A friend of mine joked with me that that he had never seen a "mental stop" filled in the pits.

If the market is good your stop will not be hit. If the market is bad or changing direction then you'll want to be out of it anyway. That is why stops are so crucial to trading success.

Here are the three most commonly used types of stops. Which one do you use?

(1) Dollar stop.
(2) Percentage stop.
(3) Chart stop.

If you chose (1) you'd be correct, but, you would also be correct if you had chosen 2 or 3. All three are money management stops and are used to either lock in profits or protect capital.

1) A dollar stop, is when you set a predetermined dollar amount to a trade. Let's say you want to risk $500 on a grain trade or $750 on a stock trade. Once you get your fill back from your broker or electronically online you simply figure from your fill price where to put your stop.

Pros: Easy to implement and use.
Cons: Can place stops too close in a volatile market

2) Percentage stop, is a very simple way for you to place a stop on a position. Here's how it works. Let's say your trading account is 100,000 dollars and let's say you only want to risk 1% of your total portfolio on any one trade. You simply take a $1,000 risk which represents 1% of your over all portfolio. This can help enormously in taking BIG LOSSES. A 1% loss is easy to absorb. A 30% or 40% loss is an account killer and can and should be avoided at all cost.

Pros: Easy to implement and use.
Cons: Can place stops too close.

3) Chart stop, a chart stop is where you place a stop that is either above or below a crucial chart level. The good thing about a chart stop is that this level is often used by other traders. That can both a good thing and a bad thing, here's why. Using either stop 1 or 2 only you know where the stop is. With a chart point a great many traders/brokers know that is where your stop is. In an illiquid market this type of stop should not be used as many time brokers gun for the stops. In a highly liquid and active market this is a good stop to use.

Pros: Very easy to implement and use.
Cons: Can't be used in thinly traded markets.

So there you have it. Now you have all three ways to manage your money and protect your profits at the same time.

Some say stops are for wimps, or "if I put my stop in the market they will only stop me out". In big liquid markets nobody is big enough to make their presence felt for more that a day so no one is going to stop you out.

Use stops…they let them work for you.

Have a great trading week.

Adam Hewison

SIX STEPS and the IRREFUTABLE LAWS of the MARKET
What Every Investor and Trader needs to know to Succeed in the Markets.

Step 1: A move begins with the sponsors (smart traders) who have insider knowledge as it relates to a particular stock or market. This information will move a market up or down depending on the insiders' information. These buyers are smart, very smart, and recognize trading/investment opportunities very early in the markup cycle.

Step 2: Days, weeks, or sometimes months after a move has started, there is a brief mention in the electronic media (radio, cable, TV) or on one of the internet chat boards that a market has moved. The public hears for the first time and begins to get interested, but does not buy.

Step 3: A blurb of information appears in print media. The move also begins getting more exposure on blogs and internet message boards. The public starts paying a little more attention, and will buy a little bit.

Step 4: Wall Street and LaSalle Street brokers go into full hype mode and hawk the market to their customers. The public begins buying in greater volume.

Step 5: A full-blown front-page article appears about the particular stock or market in one of the major financial newspapers, magazines, or financial websites. This is often six months after the fact and after a market has shown its greatest appreciation. There is often heavy public buying, even a possible frenzy, as all media, brokers, and so-called "gurus" start to tout the market.

Step 6: As step 5 gets underway, the sponsors or smart traders begin to move out of the market and take their profits off the table.

The finale Step: The move ends, the market falls, and investors lose money.

Does any of this sound familiar to you? If it does then you know the key rules of engagement in the market. If none of this is familiar to you then learn to recognize these six step asap. Your financial life depends on it!!

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Dear Reader,

You may have missed my September 13th appearance on Bloomberg TV. If you did, you may want to watch this video and see what I was saying about stocks, crude oil ($10,000 later) and inflation.

So how did we get it right and Chairman Bernanke and the FED get it completely wrong?

By viewing this short Bloomberg TV interview, you will see first hand that we predicted problems with the US markets and the economy on major financial networks over 5 months ago. The market action on Friday was not a surprise to readers of this blog. Is there more to come?

Watch the video.

Original post.

I have said this before, we are not in buy and hold markets anymore. You need to be fluid and go with the flow. The old market adage is "Don't fight the tape".

Every success in the markets.

Adam Hewison

Hi Traders,

We are only two weeks into the new year and it's turning out to be one heck of a ride. There have been so many opportunities to make money, I hardly know where to begin.

First off, I think you should watch this video as it applies to all the market volatility we are seeing right now. I made the video several months ago and it's about the most important rule change I have ever seen in my 37 years of trading. Yes, I admit, I love the markets and trading in them, where else can you have this much fun?

This major Security Exchange Commission (SEC) rule change, is a shocker, and it's having exactly the effect I thought it would on the markets. It was put in place in 1938 to protect investors and to curb volatility.

Ask yourself this, is volatility higher or lower than it was 12 months ago?

If you answered higher, you are 100% correct. Anyway, I highly recommend that you take a couple of minutes and watch the video. There's no charge, and no need to register.

As I am writing this blog posting I am cruising at 30,000 feet thanks to Southwest Airlines on my way to San Francisco, California. The trip is partly for business, but mainly to spend some time with one of my daughters before she takes off to live in New Zealand. If you haven't guessed it already, she met a young man from that country and has decided to move there and make New Zealand her new home.

Life presents many opportunities, and I am proud of my daughter for taking this one.

As a dad and a trader I find life's opportunities fascinating, don't you?

Anyhow, my daughter's move to Kiwi Land got me thinking about a lot of things most of which are personal and I'm keeping to myself. But, it did get me thinking that I haven't written much on this blog about currencies lately.

How many of you have ever traded in the currency markets?

Now the currency markets often refereed to as the forex markets, are huge, highly liquid and offer a totally new set of great trading opportunities.

The reason I mentioned that my daughter was moving to New Zealand is the fact that the New Zealand dollar which is referred to as the Kiwi dollar, has had a remarkable run up against the US Dollar. One of the principal reasons for this strong upward move is interest rate differentials. Here in the US, chairman Ben Bernanke seems H--L bent on lowering rates, while in New Zealand they have been on a steady course of raising them.

Take a guess which country all the money is flowing into? It's going to the countries that have highest interest rates.

Here's a chart of the Kiwi dollar against the US dollar for the past few years. Doesn't it make sense that you would want to have you money in currency that is paying one of the highest rates of return on capital in the world and is appreciating? Of course it does, and that my friend is perhaps the most important fundamental reasons why trading in the forex markets make sense.

Did you know that MarketClub has real-time currency quotes on all the major currencies, including the Kiwi dollar? If you are already a member of MarketClub you might want to run our "Trade Triangle Technology" against the Kiwi dollar and some of the other major currencies. I think you'll be impressed at the numbers and sweet returns you'll find there.

If you are not a MarketClub member check out this forex video ... it's free and there is no need for registration. The video will give you a glimpse into MarketClub's "Trade Triangle" approach to the forex markets.

Right now I've got to wrap up this blog posting as the captain of flight 810 to San Francisco is informing us to switch off all electronic devices for landing.

So until next time, every success in life and in trading.

Cheers,

Adam Hewison