Stop loss orders? You don't need them. Here's an alternative. / Stock trading Stock market explained, stop loss stocks, stop loss order, stop loss in trading, stop loss order explained, stop loss order example, stop loss options, stop loss on option trade, stop loss sell order, stop loss strategy, stocks stop loss, limit order, stock market stop loss welcome to looking at the markets with
David Moadel you know I wanted to talk
about stop losses today I've made videos
about stop losses and where to place
them or where I i personally place them
and I don't want to give the wrong
impression because you don't have to use
stop losses
believe it or not yeah okay so let me
let me read this to you and I'll explain
while I go along
I've heard some stock market gurus say
that you must always set a stop loss
order with your broker for every trade
that you do
as usual the gurus are wrong if you use
a small position size in your trade then
you don't need to set a stop loss order
now when I say use a small position size
I mean you're using five percent or less
of your trading account on the trade in
fact using less than five percent is
even better
for example you can use just one percent
or two percent
if you use a small position size then
it's not the end of the world if you
lose a hundred percent on the trade
think about it is it really any riskier
to buy a two-hundred-dollar call option
and not use a stoploss order compared to
buying two thousand dollars worth of
call options and setting a 10-percent
stop loss order
it's not any riskier because either way
your maximum loss would be exactly the
same two hundred dollars when you buy a
stock or option + use a small position
size you have a built-in stop loss
because one hundred percent of your
purchase is the most that you could
possibly lose on the trade it might
sound drastic to lose a hundred percent
of your money on a trade but it's not
really drastic since you're only risking
a small amount of money
and there's a big advantage to using a
small position size instead of using a
larger position size with a stoploss
order the markets will often give you
head fakes in which a stock will swing
downward triggering your stop loss order
and causing you to take a loss and then
swing upward causing you to regret
exiting your position for a loss because
you could have stayed in the trade and
made a nice profit
instead if you simply use a small
position size and don't put in a stop
loss order and just ride it out when the
stock price swings downward you could
avoid getting head faked by the market
and i'd like to show you what that looks
like in a chart here
this is a a daily candlestick chart for
apple and imagine if you bought here
right and then you know you bought a
call option or call options spread or
just bought the stock
well if you buy here
here's a head-fake the market swings
downward and if your stop loss is here
you would have gotten stopped out and
you would have taken a loss on the trade
and you know what happens a lot of the
time right after you get stopped out
the market goes right back up and up and
up
and if you read it if you had just
stayed in the trade just ride it out
not only would you have broken even
but you would have made a nice profit
here's another head fake on the same
chart if you had bought here you buy
here the market goes down that's the
head fake
and if you had gotten stopped out here
if you would set your stop loss here you
would have taken a loss
you lost money but then what happens
after the head fake a lot of the time
it goes up and up and up and if you had
just stayed in the trade and not set a
stop loss again you could have made a
nice profit here
now I'm not saying that this is a
perfect method because there's no such
thing I'm only saying that the market
gurus out there are wrong once again
when they claim that you absolutely must
set a stop loss order with your broker
whenever you place a trade
alright so I hope this is helpful and I
hope I showed you an alternative to the
you know common knowledge suppose it
common knowledge of these stock market
gurus out there and I i wanted to
present you with an alternative to stop
losses
I don't always use stop losses in fact a
lot of the time i'll buy a call or a
call spread a small amount on the trade
i'll use a small position size and i'll
just write it out
because I'm comfortable I'm very
comfortable with the amount of money
that I'm risking on the trade and so a
stop loss is not always necessary if you
set it up correctly and if you'd like
more help you can email me David Modell
at any time
my email address is David Modell @
gmail.com if you like this video if you
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my financial educational videos thank
you so much for watching this I
appreciate it and I'll talk to you soon