Trading Tip: Stopping Out

One thing that will help an active trader have more success in the stock market is stopping out.

Often times traders make the mistake of not stopping out. TRADEway Consultant, Blair Nightingale described a scenario in which many traders find themselves:

“You set a stop out, let's say $10. Your stock moves down, hits the stop out. Instead of taking an active role in doing what you said you were going to do, you start to say things like, ‘I'll just wait and see what happens.’ The stock goes below $10 and hits $9.80. Now, you are thinking, ‘It was at $10. I could've stopped out at $10 to break even, but now I'm at $9.80. I'm going to wait until it gets back to $10.’ Then it goes to $9.60. You say, ‘Oh. I'm going to wait until it gets back to $9.80,’ and so on.”

Have you ever had that happen to you? That is the psychology that comes into play when we start to take a loss, when we start to bargain with a stop out.

If you will set your stop out and  realize the cycle that might appeal to your emotions, then you can take an active role. Stop the play out where you said you would. Take the expense that you said you were okay taking before you entered the trade. You will save yourself a lot of emotional damage.