Page 389 - THE MARKET WHISPERER

THE MARKET WHISPERER 38 5

The “Stop Loss” Protective
Order

This order does exactly what its name says: it limits losses. After entering
a stock, I place a stop loss order into my trading platform and define the
precise price at which I want to exit should its direction move against me.
In some trading platforms, such as COLMEX Expert, the stop loss can be
entered even before purchasing the stock. In this way, it is only activated
when the stock is actually bought.

Generally, I do not trade for more than two successive hours per day,
but I do hold some of those stocks while I am taking a break. This is when
I use stop orders for positions that are still open.

Usually, when I am actively trading and following my screens, I don’t
tend to place automatic stop orders. I use what traders call the mental stop:
in other words, I will exit the stock with a click of the mouse if it reaches my
pre-set stop point. This will be described more fully later on. When I am
holding more stocks than I am able to handle easily, I am careful to always
place a stop order. As with most trading platforms, the stop orders I place
are kept in the broker’s computer, so that if for any reason my computer
crashes midway through trading, or the Internet connection falters in any
way, there is no need for concern: the stop orders will be executed as set.

Not All Stop Orders are Stop-loss Orders

First let’s talk terminology. It is important to understand the difference
between stop orders of various kinds, such as stop limit, stop market, and
so on (see section on “trading orders”) and the stop loss order.
• Stop limit, stop market and others are defined trading orders found in

every decent trading platform.
• Stop loss is not a defined order. You will not find the words “stop loss”

in any professional trading platform. Its meaning is simple: “cut my
losses.” With this order, you define the exit price if a stock you bought
starts to fall.
• In contrast to the word “stop” in stop loss, “stop” in stop limit, stop