Is It Approaching a Stop Level

Just as when the trade is getting close to its target level, you also should be aware of any trades getting close to their stop levels. The closer it is to the stop point, the more you should pay attention, or maybe paying less attention is the better way to say it. Thinking too much about stops is a great way to cancel or move them, as the market gets closer to them. Sometimes your stops are mental and now is the time to either place them in or really watch the market so you can exit it if it does hit the level. If you are near a stop level, I recommend putting the stop in and forgetting about it. Do not try to second-guess it. If your original stop was well thought out, there is little reason to move it as the market gets closer. Most of the time you will end up losing more money by moving or ignoring a stop. You do, however, need to go over, review, and adjust stop levels on a regular basis. But I would not be moving them further away as they get closer for fear of getting stopped out. Look at Figure 7.3 and you'll see two different scenarios, the first is the long from the first shaded circle, which is the same from the previous example. As the market started getting better I would move the stops S2, S3, S4, and so forth, up along the with moving average until eventually the market catches up to it at S7 and you get stopped out; this is the proper way to move a stop. The wrong way is the other example. Say you shorted at the arrow marked Short and you placed a stop (Stopl) above previous highs. But a couple of days later the market rallies strong (oops). Now instead of leaving your stop in and taking it like a man, you move it up to Stop 2 to give the market room to breathe. All you are doing here is costing yourself 200 more points for no reason. As the market reaches the stop level you have reasoned to be good, leave it alone. I'll get into this in more detail later in the book.

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