Learn 2 stop reduce investment risks

					2 Institute of stop-loss to reduce investment risk
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The need to stop

Volatility and unpredictability of the market's most fundamental
characteristic, which is the basis of the market there is also the
risk of trading in the cause, this is an immutable characteristic.
Transactions never certainty Forecasts are just all the analysis is a
possibility, Genju this possibility be a transaction entered Zi Ran is
uncertain, uncertainty ÐÐΪ have to have measures to control the
Fengxian the expansion stops so produced.

Stops are human beings naturally occurring process, not intentionally
produced, is an investor to protect their instinct, market uncertainty
created the need for the existence and importance of stop-loss.
Successful investors may have their own different ways of transaction,
but the stop loss is to protect their common features of success. The
world's investment guru George Soros said that the investment itself
is not the risk of loss of control have the risk of investment.
Society Stop, Do not, and loss of love. Stop important than profits,
because any time preservation is the first, and profit is secondary, a
reasonable stop-loss principle quite effective, careful not to stop
loss is the core principle of continued expansion.

Why is so hard to stop

Understand the meaning of stop-loss is important, however, this is not
the final result. Indeed, investors did not stop the implementation of
set examples abound, the market was driven out of the tragedy played
almost every day. Stop why so difficult? There are three reasons:
first, the chance of psychological cause trouble. While some investors
also know the trend has been Powei, but too hesitant, always want to
look, wait a minute, resulting in their missing a golden opportunity
to stop; second, the frequent price fluctuations will make investors
hesitate undecided, the regular stop error will leave lingering
memories of investors to shake investors to the next stop of the
determination; Third, the implementation of stop loss is a painful
thing, is a bloody processes is a weakness of human nature challenges
and tests.

In fact, each transaction is correct we can not determine the status
or error status, even if the profit, we also difficult to determine
the immediate appearance or hold wait and see, let alone in a fitted
state. Greedy instincts of human nature to pursue each and every
investor will not want to win a few points less, much less thanks to a
few points.

Programmed stop

It is for these reasons, when prices reach the stop bit, some
investors miss the square inch, hesitate, stop here again and change;
some investors changed its mind, contrarian jiacang, desperate attempt
to recover losses; Some investors to expand after the loss, it simply
"ostrich" policy to let matters drift. To avoid these
phenomena, I believe that they can take programmed stop-loss strategy.

International Futures Exchange on large orders usually provide stop.
Traders are able to pre-set a price, as market prices reach this level
STOPS ordered the immediate effect automatically. The domestic futures
exchange has not yet stop loss orders, but futures trading can make
use of advanced tools to help investors, which is now strictly enforce
the stop of a simple and effective method.

Currently, some domestic trading system can provide two kinds of
market and stop stop stop-loss order. Stop price is touched to the
market price of a default stop price, sending the market price
immediately stop commissioned; limit stop is in the market price of a
hit to the default stop loss to limit the time to send commission.
Stop market order to ensure a successful stop, and stop limit orders
are to avoid discontinuity in the price of unnecessary loss of time,
both have their advantages and disadvantages. Typically, active
species in the closing market price of stop-loss orders to use, and in
the variety of transactions using inactive limit stop-loss order.

This trading system will help stop investors to develop good habits,
and thus avoid the risk of the market, so to minimize the loss of so
passive to active in the investment market in an invincible position.

How to understand the stop-loss

Market uncertainty and price volatility are often determines the
stop-loss would be wrong. In fact, in each transaction, we also did
not know that this should not stop, if stop-loss on the may be barely
disguised pleasure, stop wrong, then not only have the funds to reduce
the pain, there will be a kind of fooled pain, spiritual combat is the
most unbearable pain of investors.

Therefore, understanding how to stop correctly understand the essence
is the wrong stop. Wrong we should embrace that stop, give a simple
example, if you stop in the transaction are correct, it means that
your every transaction is correct, and if your transaction is correct,
then why should it stop? Therefore, the stop loss is a cost, the cost
of the search for profit opportunities, trading profit is the price we
must pay for such costs only sizes, hard to right or wrong, you have
to profit, they must pay costs, including errors caused by stop-loss
price.

Comfortable with the wrong stop, not to evade, not to fear, the only
way to continue normal trading, and ultimately profit, which is the
author's understanding of the stops, including stops on the wrong
understanding.

Attention

First, "forewarned is forearmed, then do not waste pre-",
all the stops must be set before entering. Regular activity performed
investment, we must cultivate a good habit, is the time to set up
Jiancang stop, but re-appear at a loss to consider what criteria to
use often too late.

Second, stop with the trend to combine. There are three trends: up,
down and consolidation. In the consolidation phase, the price range in
a nature stop error probability of large, therefore, stop to and
trends in the implementation of the combination. In practice, I can
not understand that the correction can be considered a trend,
investors can recuperate.

Third, the selection of trading tools to grasp the stop bit. This is
to vary, it can be average, trend lines, patterns, and other tools,
but must be suitable for them, and do not let someone put to good use
you make use of them blindly. Determine the very important trading
tool, and ability to use trade tools will result in completely
different trading results.

What is the stop price

Stop price is a protective mechanism to avoid the more sets of deeper,
when the stop price set to reach, the system automatically open out.

Stop 3 bogey

Known as the investors stop short with one prerequisite for the
short-term operation-loving investors, will help stop loss of control
of their investment within a certain range, so it is regarded as
important magic weapon for short-term operation. Nevertheless, the
stops, I think that still should be cautious as well. Stop-loss is a
double-edged sword, after all, meant stop flesh, flesh, if frequent
stops frequently, then the stock market in a big long cut into small
retail investors, while small retail investors have thus canceled the
account into the stock market in the " black households,
"the. And stop-loss as a speculative way, the accuracy is not
high, but once operational errors, you will be "meat" in a
low cut but never picked it back, could have been profitable chips
because of The operating loss into a loss. Such examples in the stock
market, is around us too much. Based on the author's experiences and
lessons stocks, as it is not appropriate to stop three cases of.

First, the fundamentals of listed companies no obvious deterioration
of the situation, the history of low-cost areas is not suitable to
stop the chip. Stop to such chips, often means hand over the profits
to send to others. For this stock, an amount Powei down, investors
bold cover their short positions. When, as in August 1998, Lanzhou
China 100 (600 738), the Unit after the implementation of placements,
but also coincided with the index fell, the results fell below the
historical low of 7 yuan Department, and for a time to share to 6.30
yuan to fight. But soon pulled up the stock price, and the Unit has
embarked on a cattle way from this. Again then Tyurin shares
(600,891), also dipped below the historical low of 6 yuan, hit a new
low of 5.06 yuan, but quickly pulled the top of a 9 element. If
investors in these low cuts off the shares, I'm afraid to regret a
lifetime.

Second, the way for the rise in stocks is not appropriate to stop the.
According to the views of the wave theory, the rise of a complete wave
is composed of five waves, which rose by 1,3,5-wave wave, and wave to
adjust the wave 2,4. The rise in share price in the process of decline
should be regarded as a rising adjustment of the purchase, and if this
is the stop-loss, often will throw chips in a relative low, thereby
reducing revenue. Like earlier this year, Shanghai Stock Market
adjustment to 1893 points, then the decline in many stocks have
reached more than 7%, if stop, then it is lost in a low chip over the.

Third, the high drop without heavy volume of individual stocks are not
fit to hurry to stop. Makers shipments often completed in multiple
times, though you quilt, but if immeasurable fall down, then you can
wait patiently maker Chi Chou pull up next time out when loosened a
bit out of loss or less. Especially for the small cap stocks, or
stocks are not particularly large, after a period of consolidation,
the dealer will be more likely to pull up stock again. Wujiang River,
as the recent Power (0975), in early July, the shares briefly fell
24.40 yuan from 27.30 yuan, or more than 10%, but shares then pulled
up again, reaching a new high of 27.90 yuan. If investors stop at 10%
of the office, then it is cast in a short-term low chips on the. Of
course, those huge gains, heavy volume down the stock, investors must
be an early stop for good, in order to avoid making diving shipping,
brings you the heavy loss.

Loss law effective

1, the fixed stop-loss method

This is the easiest way stop, it means the loss is set to a fixed
ratio, once the loss is greater than the ratio of the prompt
liquidation of positions. It generally applies to two types of
investors: first, investors just market; Second, higher risk markets
(such as the futures market) investors. Mandatory role of the fixed
stops more obvious, investors over-reliance on the market without the
judge. Set stop-loss ratio is the key to the fixed stop. The
proportion of fixed stop-loss data from the two components: First,
investors can bear the greatest losses. The proportion of investors in
mind because of financial capability, etc. vary. Also expected the
profits with investors.

Second, random fluctuations in trading products. This means that no
external factors, the market trading group behavior disorder caused by
fluctuations in the price. The ratio of the fixed stops in the two
data set is where to find a balance. This is a dynamic process,
investors should set the percentage based on experience. Once the
stop-loss ratio setting, investors can avoid being unnecessary shock
out random fluctuations.

2, technical stop-loss method

The more complex the technology stop method. It will stop setting
combined with technical analysis, excluding the random fluctuations in
the market after the key technical bits set in the stop-loss orders,
so as to avoid further losses. This approach requires investors to
have strong technical analytical skills and self-control. Technology
compared to former Stop method on higher investor demand, difficulty
of finding a fixed model. In general, the use of technology stop
method, nothing more than to bet a large surplus of small losses. For
example, increased access to buy the next track, the wait for the end
of an upward trend again open, and stop bits set on average in the
relatively secure mobile line in the vicinity. On the Shanghai Stock
Exchange, the market index on the row, 5-day moving average short-term
trend can be maintained, 20 days or 30 days moving average will be
maintained in the long-term trend. Once the market began to rise after
the 5 days moving average in the intervention of which will stop in
20-day moving average near the stage can enjoy increased market
brought most of the profits, but also get out of the head formation in
a timely manner to ensure profits . Rising market in the early stages,
5-day moving average and 20 day moving average distance is small, even
if the wrong market, the 20-day moving average near the stop loss will
not be too much. Again, enter the consolidation phase of the market
(disk Bureau), the usually have triangular shape box or convergence,
price and medium-term moving average (usually 10-20 antenna) of the
deviation rate is gradually reduced. At this point investors maximum
deviation rate in the technical office to intervene and stop bits set
in the maximum deviation rate of disk Council Office. This low prices,
for the difference. Once the price of the medium-term moving average
deviation rate of re-amplification, while Italy. At this point, if
prices fall into, investors should be bold and leave. City Council is
set relatively unilateral purposes. Bureau of the initial site, the
market that everyone is worried, shock greater, the transaction can
venture into. Plate should be to stop the late Board narrowed the
scope of appropriate, enhance the safety factor.

3, unconditionally stop method

Regardless of cost, Duo Lu fled the stop is called unconditional stop.
When the market has undergone a fundamental turning point in the
fundamentals, investors should abandon any illusions, popped up all
costs in order to save power, choose the battles. Changes in
fundamentals is often difficult to reverse. Fundamentals deteriorate,
investors should make a prompt decision, cut out warehouse.

In conclusion, stop loss is to control the risk of necessary means,
how to make good use of stop-loss tool, investors should own styles.
In the transaction,

Investor's overall position on the market, the trend is very important
to grasp. Multi-stop in the high-priced ring, ring in the low or no
less, in the price cycle should be determined as the market is moving.
The flow, with a good stop-bit is the only way of winning investors.

Four stops to prevent misunderstandings

Misunderstanding one: frequent stops, only the more damage the more

Most novice first joined the futures market, stop in because they do
not suffer losses in time, the general would learn, for strict
stop-loss principle. But for a "once bitten, twice shy"
mentality, often easily into the other extreme, it is because market
transactions are not familiar with and is not self-confidence, did not
set the stop loss rules, frequent loss frequent stops.

This misunderstanding is enormous harm, no matter how much amount of
money, no account can take a long-term losses, even more seriously,
when an increasing amount of money is low, investors may be losing the
confidence of and transactions, always stop and do not hesitate to
stop wandering between, it is difficult to develop and implement a
reasonable stop-loss program.

To avoid such a situation, investors should any one species in the
transaction, first familiar with the market rules and price volatility
characteristics, and according to different varieties for different
stop loss strategies and stop location.

Misunderstandings 2: loss to "drag" to come back

Investors in the event of loss, often indecisive, luck, give up the
implementation of the stop-loss program, hopes to reverse the delay to
wait for the quotes, the loss "delay" to come back.
Especially in the huge loss of time, because psychologically
unbearable, hopes to reduce the loss rate of delay. This is the most
difficult to overcome the Exchange is the most common mental errors.

In fact, any transaction has the best time to stop and stop-loss
position, if missed, not only can not recover the initial losses, may
also lead to huge losses. Especially when the loss occurred
contrarian, should act decisively and strictly implement the stop,
this is the so-called "not afraid of mistakes, I am afraid that
delay."

Misunderstanding number three: only a small loss, loss a lot of money

Some investors have certain trading experience, tend to overestimate
their ability to stop, caught in the stop-loss of "only a small
loss, loss a lot of money," the error. For example, when loss of
less than 10% of the time to stop in time rational, but when the loss
of more than 50% of the time but do not want to stop.

				
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posted:9/28/2010
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