Friday, 22 May 2015

What is Time Stop?

I've mentioned the term "Stop Loss" in previous post. It is a predefined price level at which you will cut your losses and move on to the next trade. It is an important concept that every trader should follow and be discipline about it.

But there is also another stop loss strategy that I use in my plan but have yet to have a chance to actually exercise it. The concept is known as "Time Stop".

You do not necessarily need to wait for the price to hit your stop loss price to get stopped out. Time stop is with regards to the duration of the trade. There will be some trades that hit your take profit level really quickly, like in a matter of days. But there will be some that will take like what seems forever.

If the trade is ranging around a certain price and not really doing anything, I will exit my position whether or not it is at a profit or loss. The opportunity cost of holding on to that position which is going nowhere exceeds the cost of exiting the position.

I usually give my trade a maximum of about 7 to 8 weeks for it to work itself, if it doesn't, then it is time to get out.

I personally have not had a chance to use to stop because my trades have never taken that long before. I will update you when it does so that I'll have a good example to show you.

As always, happy trading.



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