Top Dog Trading Podcast

The Best Place to Put Your Protective Stops



Trading is a business of probability. Every trader will take losses, so we need to use protective stops. Many traders take profits quickly but hold on to losing trades - it's human nature. We take profits because it feels good, and we try to hide from the pain of losses. 3 BAD TYPES OF PROTECTIVE STOPS: Above/below support/resistance. This can be previous highs/lows, pivot levels, Fibonacci, etc. Too obvious: Stop running. S/R aren’t lines but zones. Percentage move against entry. Meaningless with regard to the chart and price action. HOWEVER, #1 rule: Must be within your money management rules: No more than ½ of 1% of your trading account. Volatility stops  ATR Parabolic SAR Some traders use this technique because they say you have to allow room for the “noise of the market. Seems logical, except for one huge problem: It violates one of the most well-known rules of trading: “Cut your losses short and let your winners run.” So how do you keep that rule and still allow for the noise of the ma