Your Top Trading Questions, Answered Daina’s note: For the last few weeks, we’ve asked you to send in the top trading questions you want Larry to answer. (If you haven’t yet, write them in to feedback@opportunistictrader.com.) Today, he’ll answer them…
I’d like to know what Larry thinks about using stop loss orders… – William Stop-loss orders are essential, for new traders especially. I use them all the time. It depends on your capital base, and how much risk you’ve earned, but I wouldn’t let any trade take out of more than 20% of your capital. If you’re new, that’s where you should set your stop when you open a trade. Of course, when you’ve built up a cushion with a large capital base, you can let trades run a little longer. And, this may be a bit advanced, but I’d also recommend setting stops on the upside, too. As you profit on the trade, move your stop up with that profit. That way you’re locking in the 5%, 10%, 20% gain you’re shooting for on the outset, and slowly building up capital. Now, something I do, which I wouldn’t necessarily recommend for new traders, is buy MORE of a position as it rises – and I do that as I’m raising my stop on the initial trade. I won’t do this 100% of the time. But if I feel that I’ve caught the trend of the trade, I’ll open a new long position into that rise. And I’m taking the smaller profits as I go, as well. Just read Larry’s article on taking losses and moving on. For a trader like myself, when is the best time to take the loss? As soon as the trade goes in the wrong direction? After 2-4%? Sell some shares or sell all shares? Dollar cost average with more positions? Would like some guidance based on Larry’s experience. – D I’ve dollar cost averaged before, both with adjacent positions and the same position. But from what I’ve seen, it’s not that successful. Not for me, and not for most people. It’s a fast way to go out of business. If a trade goes bad, you dollar cost average in… and it falls further… suddenly you’re twice as big into a bad position. That’s just not sustainable trading. Longer-term investing is different… If there’s a stock you like with good fundamentals, and it goes on sale, that’s a different story. Like I mentioned, I’m more looking to average into winners. That’s by taking small gains into strength, and adding to my position, simultaneously. When looking for 2-5% gain, what timeframe is this based on? Some trades will gain this in less than 24 hours… others may take weeks or even longer. What time horizon do you keep in mind or do they vary by trade? – Jan For a 2-5% gain, I’m looking to take profits in the span of hours – or less. If you’re starting out, these are the type of trades you should be making several times a week. This is just to get started and get comfortable with the process. On a longer timeframe, the profit potential grows. So, for trades that take a few days or weeks, you can hang on for bigger profits. 25% to 50%, around there. But even today, I’m constantly taking gains at the 2-5% level. I’m doing those in minutes, sometimes, if not less than a minute. So to answer your question, the time horizon and profit target absolutely vary by trade. But if you’re having a rough patch, and your base of capital has shrunk a bit, it’s good not to forget the quick trades with 2-5% gains. That’s what gets you back in the game. Nice interviews, thank you! I have a question: which book or books does Larry Benedict recommend reading to get more relevant knowledge about trading? Thanks again and kind regards! – Floris There are a few that come to mind… Tools and Tactics for the Master Day Trader by Oliver Velez and Greg Capra – This is a great starter volume for new traders. Almost like a trading textbook, it’s full of earnest information about many different markets, investor psychology, technical analysis, and how to implement discipline through position sizing and stops. It was written in 2000, but everything in there still applies to today’s market. I’d definitely consider it an essential trading book, in terms of information. Reminisces of a Stock Operator by Edwin Lefèvre – This one is more for fun… It’s not a guidebook at all, but a biographical work on Jesse Livermore – one of the greatest traders to ever live. Many famous investors and traders cite this book as being incredibly influential and even inspirational, and I would definitely agree with them. Even if you never trade, and you just read, this is an absolute must-read. Mastering the Trade by John Carter – This is another guidebook that I highly recommend for anyone that’s serious about making a career out of day trading. It’s a guidebook that’s geared for day traders specifically – the people that spend all day trading small bets and building capital. It provides specific entry and exit points… risk management methods… and market prediction techniques. Where Tools and Tactics is for the novice trader, Mastering the Trade is for the folks who are serious about trading full-time.
Daina’s note: Thanks again for sending in your questions. And please keep them coming to feedback@opportunistictrader.com. By the way… If you haven’t yet, don’t forget to sign up for Larry’s Trade-a-Thon on December 11 at 8 p.m. Starting Wednesday, Larry will be releasing a mini documentary-style series all about his unique trading approach and where it’s taken him in life. For all who sign up, a new episode will release each day leading up to the big event… To make sure you don’t miss the videos, book your spot for the event – for free – right here… | 
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