Opening Gap Stop Loss Rule

This stop loss strategy is heavily used by short-term spread bet traders.

• A trader at the beginning of the week buys £10 a point of Vodafone at £1.20 looking for a quick move higher
• He places the stop loss at £1.15
• Overnight something disastrous is announced and the shares the following day open at £1.10
• What should he do, sell the shares immediately on the opening or freeze?
• Not knowing what to do is not an option, and selling on the opening is normally a bad trade because of the blind panic

The best advice is to wait anywhere from 10-20 minutes and then place your stop a point below the low of the opening range. If the stock opens at £1.10 and £1.08 is the low in the first 20 minutes, place your stop at £1.07. You will often find that in situations like this, £1.08 will be the low for the day.

Time Stop Losses - The Three Period Rule

Many investors relate to the fact that successful trades often work from their onset. You buy a share using a spread bet, it moves higher and then continues to build profits. Losing trades also have a habit of doing this but in reverse. Almost straight away they go down or just meander, showing immediate losses.

• The Three Period Rule is designed to force you out of trades that are simply not performing as expected
• You might buy £1 of Boots at £6.00 on a Monday, only for the price to be still wallowing around this level at the end of the week
• Clearly you did not expect this to happen, otherwise why not stay in cash and then buy later on?
• Experience shows that if a trade does show a profit quickly then it is better to go back into cash and re-evaluate the situation