Creative Use of Stops

Jason Alan Jankovsky

Sponsored by Infinity Brokerage
Live Presentation Starts at 11 AM Chicago Time
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Creative Use of Stops

Jason Alan Jankovsky

Sponsored by Infinity Brokerage
 Introduction

Trading Futures, Options on Futures, and Foreign Exchange involves substantial risk of
loss and may not be suitable for all investors. You should carefully consider whether
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 Introduction
Today we are discussing creative ways to
place stop-loss orders more effectively.

The question of placing stops is a

cornerstone to quality trading and one of
the most significant skills a trader must
develop.
 Introduction
Effective placement of stops is not about
controlling risk so much as managing a profit.

The first assumption that we make with today’s

broadcast is that you have winning trades and
loosing trades—but your stops are taking you
out of winners too early or that you are taken out
of trades at a loss early before the trade worked
for you. In other words, if your stop was
managed better—your net results would have
improved.
 BASICS
Never trade without a stop!!!!

If you are trading without stop-loss orders now, or are tempted to use
“mental stops”; your risk of loss is larger in my view.

You cannot extend control to price action. If you are on the wrong side
of the order-flow—you loose. If something has changed with the
structure of the market, and you don’t see it fast enough to protect
yourself sooner—your protective stop-loss order prevents a total or
catastrophic equity loss to your account.
 Basics
Don’t move your stop!!!!

If you move your stop-loss order aggressively your

potential for smaller gains or faster losses is
higher.

You run the risk of “random noise” taking you out

of a position. The fastest way to cut a profit short
is to move your protective stop too aggressively
to lock your gains.
 Stops
In my view, the best use of stop-loss orders is to
use them as profit-management tools—not risk
control tools.

If you start from the assumption that any

reasonable trading approach will have its share
of winning and loosing trades, holding your
winners is what makes your trade plan a
success. Obviously, your stop-loss to exit a loser
is not the issue because that is one of the trades
that your system has within it’s loosing
parameters.
 Stops
Therefore, how and when you move your stops
is the critical component to your approach.

If you were “dead wrong” on the position to begin

with; your initial protective stop would have
taken you out of the trade at your risk-tolerance
level. Anything other than an initial loss your
stop order is now a profit-management tool.
 Stops
What creates your profit?

Being on the correct side of the order-flow.

If you have identified the correct order-flow

as it develops, the only thing to do is WAIT
for the order flow to change. You liquidate
the winning trade “when something has
changed”—not before.
 Stops
If the trade reaches your objective—you would use
EITHER a market order or a limit order to liquidate your
profitable trade. (This is proactive trading)

If “something has changed”—and you don’t see that fast

enough to protect your open trade winner—your
protective stop-loss order takes you out of the trade.
(This is reactive trading)

Think of protective stop-loss orders as the “Something is

wrong with this trade” point—that is a factor of market
structure; not what the trade has in it at any one point.
(This is proactive trading).
 Stops
Remember—you cannot control price action; you
can only participate. Therefore, you want your
participation to be proactive; in control
regardless of what the market may be doing
from one moment to the next.

Placing your stops in places where the market

“can’t get to” unless “something has changed” is
a proactive way to avoid being inside the
random noise that typically creates price action.
 Stops
Ask yourself questions:

“What would a bull/bear be thinking if prices

moved to _____?”

“Where are the other guy’s stops?”

 Stops
Some basics:

Stops for the typical losing position are “in

range”—what defines “in range” for your
timeframe?

Most losing positions are liquidated after a certain

amount of actual USD loss to the individual
account—what is that in your market?
 Stops
Most losing positions are liquidated after a
certain amount of time has passed—what
is that amount of time for your market and
timeframe?

Stops are aggressively moved by loosing

traders to “lock profits”—where would a
winner move his stop to? How far is that in
USD for your market?
 Stops

Let’s look at a few trades in “real time”….

 Summary
Look at stop-loss orders as a discipline and
profit management tool

Best when placed at the “trade is no good”

point rather than moved to “lock profits”

If not using stops proactively, your potential

for consistent gains is lower.
 THANK YOU!!
Please join me for my FREE twice-daily FOREX
broadcasts done daily over the internet; see site
for details.
Jason Alan Jankovsky
1-800-531-2817
j.jankovsky@infinitybrokerage.com

Q1 “Psychology of Trading” seminar starts January

20, 2007 for qualified traders. Please see
website for details.
Q&A / Contact Information

Jason Alan Jankovsky

www.infinitybrokerage.com
J.Jankovsky@infinitybrokerage.com
Tel: 1-800-531-2817

Chicago Board of Trade

www.cbot.com
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