When To Move Your Stop

If there is one Golden Rule with stops it is this: NEVER, ever, move your protective stop further away from the market.

Let’s say you have taken a new upbet in the FTSE at 5,215 with your protective stop at 5,160. Your target take-profit point is 5,375 for a nice 160 point potential gain. Then the market falls back to 5,180, and you nervously stare at the screen in horror.

You have convinced yourself that this is going to be a good trade, and can’t wait to bank that profit, and so the market is just in a ‘temporary profit-taking phase’. You love your position so much that you decide to give it a bit more room – so you move your stop down to 5,125.

I think you know what is likely to happen next – the market does indeed move down to your new stop and takes you out for a whopping 90 points loss. Compared with your potential gain of 160 points, that is a loss of 56% of your potential gain – far too high.

To add insult to injury, the market then screams higher going way past your initial 5,375 target – and you are not onboard. So how do you feel now?

I know, pretty devastated. I do not want that to happen to you, so use a sensible stop, keep it there, and if stopped out, you are emotionally able to re-assess the situation and to get back in, if conditions are right.

It’s all about being prepared for the worst – but expecting the best. Those great trades will come along – they always do so long as we have the financial markets.

Keeping Records Of Your Trades

Why should you keep records? Well, the first record you need to keep is your margin position with your spread betting firm. Lose track of that, and you are driving while blindfolded.

Without this knowledge and daily monitoring, it is easy to over-trade and get margin calls from your firm (meaning, they want more money from you to hold your positions). Trust me, you do not want to get into this situation, unless you are keeping a separate interest-bearing account aside for just this purpose.

You could place just enough funds into your trading account to handle your anticipated position over the next week or so, and keep the bulk of your trading funds gathering interest. When interest rates were much better than today (those were the days!), this made a lot of sense. But today, with banks paying paltry rates, you are just as well to sink all your trading funds into your trading account.

To avoid over-trading (taking on too many positions for your account size), I suggest you use to margin positions no more than 70% of your account. If you are a very conservative trader, then peg this down to 50% or so. Your spread betting firm will have the figures you need on their platform.

Keep some powder dry in order to take advantage of promising trades when they come up.

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