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Tackle Today: Money Management & Stop Losses

August 4, 2022

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«What to do if you’re wrong.»


Protecting your capital is a crucial piece of money management. For active traders, the most common tool to limit loss and reduce the impact of a bad trade is the stop loss.

A stop loss is a predetermined price point where you call it quits on a trade. It’s a line in the sand you draw that demands you jump ship if crossed. Usually, the stop loss takes on the form of an exit order to close a position if the original reason for entering proves invalid.

Suppose I purchased stock XYZ for $100 because it was in an uptrend and bouncing off support. My thesis for buying the stock was that the uptrend would continue and support would hold. Breaching the floor would be the market telling me I was wrong.

And if I’m wrong, why stay in the trade? Predefining your stop loss also allows you to identify the potential risk in the trade. For example, if I purchase a stock at $100 and place my stop loss at $97, then I know the risk per share is $3. Without knowing this, it would be impossible to calculate how many shares to buy, given my position sizing rules.

Video Of The Day: How to buy a stock and place a simple Stop Loss

Coach Noah goes over a simple order to buy and how to place a #stoploss once you purchase the stock.

Chart of the Day: Crude Oil Futures (/CL)

Chart of the Day: Crude Oil Futures (/CL)

Crude oil cracked the 200-day moving average and is close to breaking $90. If you’re looking for why energy stocks lagged on Wednesday, this is it!

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