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Stops Now Printed with Recommendations

     The Stock Traders Press has added a new feature to its short-term research report: stop prices. The stop prices are listed in the heading of each new recommendation right after the recommended buy price and the target price. This is the price our research team believes a client should exit a stock if it declines below our recommended price. The stop prices are based on either a percentage decline or a support level. Percentage based stops can be adjusted by clients if they picked up our recommended stock above or below the recommended buy price, but support based stops should be held steady regardless of what price a client gets the stock. Support based stops will be noted as such.

    Most traders and investors don't use Stop Orders, but is this wise? Stop Orders can help an investor increase their returns, stem their losses, and reinforce the mechanical aspects of their trading strategy rather than being pulled around by their emotions. The logic behind the use of Stop Orders is simple: cut your losses to preserve your capital. Investors often overlook the fact that if the value of their investment declines it takes a greater increase to return their account balance to where it started. A small loss requires a slightly larger gain to be even again, but a large loss requires a Herculean gain just to get back to even. Most investors kill their chances of great returns by not stemming their losses. They're just fighting to get back to where they started. A 10% decline requires a nominal 11% gain to get back to the same level, and a 15% decline requires an attainable 17% gain to be even. A 20% decline requires a fairly large 25% gain to just get back to even, and if an investor lets an investment slip 25% then they need a 33% gain to get back to where they started. Most investors are looking for a nice two or three digit return on their investments, not just an account with the same starting balance.

    There are four primary types of Stop Orders: brokerage firms offer two and two reside in the trader's head. Not all brokerage houses allow the use of all types of stop orders so check with your firm to see which stop orders they will let you place. A standard Stop Order is placed below a purchase price and is triggered when a stock declines to the specified stop level. A standard Stop Order becomes a market order when triggered, and will be executed at the prevailing market price with there being no guarantee of the price received. Stop Limit Orders turn into a Limit Order when the stop level is reached. With the Stop Limit Order the minimum execution price is known but in fast trending markets the prevailing price may be below the selected limit price and the sale may not get executed. The third type of Stop Order is the one manually calculated by the investor when they enter the position. The secret is to actually act on the mental stop when the price is reached. The fourth type of stop is a trailing stop. This is actually one of the stops offered by brokerage houses that is manually moved up below a profitable position to hold on to gains. Successful traders will use their stop of choice, limit their losses, and keep their capital in the most productive stocks.

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