It is critical that you provide some mechanism in your trading that will prevent your losses from becoming insurmountable. I use stop loss orders to prevent total erosion of my trading capital.Stop loss orders are entered with your broker. The broker executes them when the market price moves to that level. The stop sell order is executed when the price goes down and hits your stop price; the broker sells out your position. If the price reaches up to your stop buy price, the broker is obligated to buy in your position. The object of the stop order is to limit losses because of bad market judgment. If the price of the item you are trading is going against you, you have to get out at any cost. Don’t play for price at this point; play for position: The original pricing of your position is obviously wrong, so get out of it. Get back in later at a better price. Regardless of what you think about your market, you must have a stop loss order somewhere. It can be 10 percent of market price or whatever number you want. It might even be as ridiculous as half of current market price! I have seen enough market moves to know that even the ridiculous becomes patently sound given the right market conditions.
