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Open in new tab IMPORTANT POINTS
1. The most important rule to follow in trading and investing is to cut losses short .
2. In making a commitment:
a. decide where the danger point is
b. calculate the probable profit
c. determine the profit-risk ratio
d. place a stop order.
3. The profit-risk ratio should be at least 3:1 before making any commitment.
4. Stop orders become market orders once that particular issue sells at or through a stipulated price.
5. Stop orders are the greatest protection against danger in the stock market – they are your ‘insurance policy.’
6. Enter stop orders on all commitments and move them judiciously whenever possible to protect profits.
7. Stop orders are used to: a. limit risk
b. reduce risk c. insure profits
d. begin new trades.
8. You are in danger of being whipsawed if you begin trading with stop orders without thorough knowledge of the market.
9. Buying stops are used to greatest advantage when:
a. a stock is near the springboard at the end of a period of accumulation
b. a stock is on the hinge
c. a stock may break through a resistance point of a trading range.
10. Do not place stop orders at even figures.
11. Never increase your risk with a stop order.
12. Reasons stop orders get frequently caught are:
a. beginning trades too soon
b. trading against the trend
c. improper placement of stop orders.
13. Not to use stop orders is to ignore one of the most vital principles of stock market operations.