Stop Losses Are Perverse

• Stop loss orders are bound to frustrate you
• If you are using them to dump a losing position then their application will always mean bad news
• You will not only have been proved wrong in your market judgement, you will also have lost money
• The most frustrating aspect of stop losses is when you sell your losing position on the low of the day or of the move, before the market suddenly turns around and moves dramatically higher.

Situations like this happen to all traders who use stops, and you must realise that using a stop loss on any individual trade with hindsight may not have been the correct thing to do. But using a stop loss policy over a series of trades is the critical point. If you do this then you will have times when they infuriate you but also times when they preserve serious amounts of your capital. Try and get in the habit of always thinking that one trade is never that important, it's a series of trades over a period of time that is significant.

Experience is Important when Placing Stops

There is no exact science when deciding at what level to place a stop loss. Sometimes many factors come into play and experience is often the key when deciding the right level to place them. Perversely you will find that you learn a fair amount from putting your stops in the wrong place! This, while bad news in the short term, is often good news over the long run. Learning from your mistakes is the best education a trader or investor can receive. But, of course, 'stops' can help to make that learning experience less painful.

The main error people make when first using stops is to place them too near to where the market is trading. If you want to cut down on the number of errors that you make when you start out, then try to place your stops far away from the current market price, giving the market plenty of room to naturally move around without stopping you out.