Track 'n Trade Bulls 'n Bears Trading System
In this Track 'n Trade training video, we're going to be discussing the use of Stop Orders. Now, you've hear me say it before, and you'll hear me say it again- Getting into a market is easy! The difficulty and (in my opinion) the key ingredient to your success or failure, as a trader, is knowing where and how to get out of the market.
This introduction video is not in any sense of the word a complete description of all the complexities of Stop Order management. But an insight into stop loss management and some of the ways we can use these techniques through the eyes of trading with the Bulls 'n Bears system. First off, what is a Stop Order? What is a Stop Loss Order? What are the differences?
A Stop Order is just one of several order types that we use within trading, to either enter the market or exit the market. Here's the standard rules regarding Stop Orders. Place a Buy Stop order above the market price. Place a Sell Stop order below the market price. A Stop Order becomes a Market Order when the specified price is reached. When we place a Stop order, we specify a price in which we want the market to reach before our order is executed. Either to enter the market or to exit the market. This way we can make sure the market passes a test, before our order is executed. This test, of course, is that the underlying market price, must trade at our specified level. Even though the term Stop Order evokes the thoughts of stopping your trade, or exiting the market, the stop order is very versatile. In fact, it's primarily used as one of our principal market entry tools, as well as exit tools.
Since a Buy Stop order must be placed above the market as specified price, we use Buy Stop orders to enter the market on a long position, once prices have confirmed that they're beginning to rise. Inversely, we can use Sell Stop orders to enter the market on a short position, since a Sell Stop order must be placed below the current market price. We can use a Sell Stop to enter the market, once markets have confirmed that they're beginning to fall.
In the case of the Bulls 'n Bears to enter the market long on a Buy signal, we often times like to place a Stop order just above the high of the first Green price bar. Or to enter the market short, we would place a Stop order just below the first Red price bar of a Sell signal.
In trading we like to use rhymes, to help us remember certain strategies. One such rhyme is used to help us know how to place our initial Stop Loss orders. It goes like this: Cut your losses short, let your winners run! In so doing, in accordance with this rhyme it would make sense for us to set our initial Stop Loss order very close behind our Market entry point. Since this is the only opportunity that we have to actually cut our losses short. At no other time during the trade can we cut our losses short. Since every other time along the trend, if we're in profitable territory, would be cutting our winnings short- not losses. Therefore, in my opinion, taking the stance of having a very aggressive initial Stop Loss position, is key to cutting losses short.
Personally, I would rather miss out on a profit opportunity by getting stopped out prematurely on entry, then take a huge loss of my initial capital. If I only take tiny initial losses, I may end up taking more of them, but I can then come back for a lot more attempts at obtaining profits.
Using a Stop order to exit the market is probably what makes the most sense in many peoples minds. There is no difference between a Stop Order and a Stop Loss Order. Only in that we generally refer to a Trailing Stop Order as a Stop Loss Order. So that when certain conditions are met, typically that the market has sufficiently turned against our position, that we then exit the market without losing any additional gains. This strategy is also known as a Trailing with a Protective Stop. When trading with the Bulls 'n Bears, although we have several options to choose from, we have established very specific rules on where to place our initial Stop Loss Orders. We have basically two or sometimes three places we can put our initial stop. Of course, experience will help you learn which placement is best during different market circumstances. Once our Entry order is filled, we would place our initial Stop Loss order, in one of three places. First- we could choose to place our Stop order directly behind the entry price bar. Second- we could choose to place our stop order directly behind the last Yellow price bar. Third- we could place the Stop Loss order on the Bulls 'n Bears Blue Light Auto Trailing Stop system.
These are the three most common places for placing our initial Stop Loss orders. When considering placing Stop Loss orders, it is generally best to use a strategy that doesn't require you to follow the crowd. Or by putting all of your eggs in one basket. So to say.
An Advanced Stop strategy, is one that differs from the rest of the market players. One that puts Stops in out of the way places in less traditional price levels. Sometimes one price level is better than another, and by having stop orders split between multiple locations we can significantly help protect our trade from getting entirely stopped out prematurely. Yet, it also helps reign in our risk reward ratio. As the market begins to move in our favor, my favorite strategy is to begin combining these very powerful strategies. First, begin breaking Stops apart, and having them trail the market from different price levels. Behind areas of support and resistance. Then add one or even two mathematically calculated trailing stop points. Derived from the Bulls 'n Bears Blue Light system, and the Welles Wilder Parabolic SAR. By working between these multiple Stop systems, we end up with the best of all worlds. A strategy that protects short term profits, lets the market run for longer term gains and manages our overall risk vs. reward ratio. A strategy in essence that outwits the market. Trading is like playing a game of chess- if you can't see several moves ahead of your opponent, with multiple chess pieces, then the player who does have this forward looking ability is going to be a better player. Which will result in the difference between a winning player, and a losing player.
By applying this idea to the market, this helps us remember to try and work out within our trading plan, where the market is going to go next, and why.