How Do You Maximize Your Profits In Any Trade On The Stock Market?

How Do You Maximize Your Profits In Any Trade On The Stock Market?

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In trading the stock market, no-one has a crystal ball. The price of stocks can go down and up. What is needed is an exit strategy that will enable you to survive the bad stocks, and make a good profit on the good stocks. The method that I have found to work the best is a trailing stop loss. For those who don’t know what a stop loss is, I shall explain briefly. A stop loss is an order for your stock broker to sell your shares if the price dips to the level that you have specified.

There are two ways of doing this. The simplest method is to decide on how much you are willing to lose as a percentage of your investment. A good rule is not to go less than 10%. Work out the price of the stock at this level and set that as your stop loss. As the price of the stock increases, keep moving the level of the stop up to keep the percentage gap the same. Some brokers offer a trailing stop loss service, where you tell them what percentage to set the loss at and they do it for you.

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The second technique is a touch more convoluted, and comes from Nicolas Darvas in his book How I made $2,000,000 in the market. The markets have a tendency to flow in stages. A stock rising will reach a top, and then dip back down. It may do this many times at every stage. The idea is to follow the chart of the stock and see where the dips are the lowest, and set the stop loss just under them. A second part which Nicolas propounds is that when the stock breaks out of the sideways trend, to buy more of the stock, and when the stock starts going sideways again to move the stop loss up again to slightly under the lowest part of the dip.

Using the stop loss as an exit system, only works if you stick to it, and not lower it, thinking the price will go up again in one or two days. In one or two cases you’ll be right, but what customarily occurs is the price keeps moving against you, and you loose far more cash. As a secondary to this, the cash still tied up in the 1st stock that’s falling can not be used on another trade.

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Eventually , a note of warning about using the stop loss system to guard your capital. There are occasions when the markets goes through a fast fall in price, there are laws about how far a price can fall in one-day. If it falls this maximum distance, it can bypass your stop-loss, and you will lack the ability to sell. Though these eventualities aren’t common, it’s better that you know about them. So they aren’t a shock when they do happen to you.

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