Whether you are an investor or a trader, you need to be well versed in risk management. That is how you keep your profit levels up. You can’t win all your trades. You need to be able to keep your losing trades under control. There is nothing worse than wiping out all your winnings for the day by staying too long in a terrible trade that you should have cut bait on hours before. The market moves at a whirlwind pace, which means you always need to be ready. That is where stop losses come into play.
CMC Markets can be an ideal place for your trading activity, because the environment is conducive to using stop losses properly and keeping your risk management ability in top shape. And that is necessary when you want to be a top trader.
Why would you want to place a stop loss order? Well, it is a method that you can place with a broker to buy or sell once the stock or security reaches a certain price. Its purpose is to limit a trader’s losses on a particular trade. If you are buying shares of stock X, based on your research and belief that stock X is going to experience a rally and your profits are going to go up, that might happen, but it might just be that stock X starts to drop in price. If you have a stop loss order on that trade, the broker will sell your shares before the price drops too low. That will save you from losing a bunch of money on a single trade.
As an active trader, rather than a long-term investor, it usually makes sense to place a stop loss percentage at a pretty low level. That will allow you to protect yourself from as much downside risk as possible. That is one of the major keys to being a profitable trader in any market. Whether it is forex, futures, commodities or stocks, you need to be on top of your risk profile. There is no winning every single trade. So limiting your losses is absolutely vital to being involved in the financial markets.
That is the lens that you need to look at the world through when you are trader. You always need to be a concerned with the potential for losing more than you planned for. In fact, having a plan for each and every trade you make is the first fundamental in risk management. One of the most overused quotes that you might see in forums and trading chat rooms is “Plan the trade and trade the plan” or something to that effect. Planning ahead is, no doubt, the first way to get ahead in the trading game.
Using the stop loss order is one of the best ways to stay on top of your plans. With experience, you will be able to determine what the ideal price of the stock should be when you sell, even before the trade is executed. When you can determine all that before you trade, that means that you have reached another level. You want to get there. But beginners have a long way before they get to that level.
Going about it any other way, with no plan and no direction, is the gambler’s way. And that way is for sure going to get you in trouble. Real financial trading is not gambling. It is a disciplined way of looking at the market. If you approach your chose market with a devil-may-care, gambler’s style you are going to end up as a mark.
Knowing the ideal profit is a skill as well. Many inexperienced traders are too greedy, rather than too conservative. Once you get the expected profit locked in, you want to sell. That is where the take profit order comes into play.
For more tips on financial trading and risk management, look to this resource for picking the right platform that will match your risk appetite and strategy.