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<DIV><FONT color=#000000 size=2>Forty years ago, after working seven days a week
and twelve hours a day, I had amassed a fortune of some $55,000. I took a little
nite course at the local highschool on how to invest in stocks. After the
course, which covered the subject real well, considering the times, I found a
stock in the paper that appealed to me. I called the "Customers Man",
who was employed by a well known brokerage house and had given the course. I set
up my account and placed my first
order. </FONT></DIV>
<DIV><FONT color=#000000 size=2> The stock I mentioned was
called Coastal State Gas and was listed in the NYSE for $11/share. I bought 5000
shares. My former teacher then said "Doctor, would you like to put in a
Protective Stop? It will help you get used to them." I thought this was a
good idea and so placed a sell stop at $7.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT><FONT color=#000000
size=2> The next day, I was called and told that I had been
stopped out at my stop of $7. </FONT></DIV>
<DIV><FONT color=#000000 size=2>I had just lost $22.000. The following day it
was back up to $11. The following week it was trading at $17.</FONT></DIV>
<DIV><FONT color=#000000 size=2> What happened? My poor broker
couldn't understand it, I couldn't understand it, but I sure know
now.</FONT></DIV>
<DIV><FONT color=#000000 size=2> The Specialist, whose job it
is to keep an orderly market (and owns the Yachts), saw my protective sell
order on 5000S at $7 in his Book, brought the price down to $7, and bought my
5000 shares for $7 for his private account. He knew something was going on
and took advantage of a brain-washed sucker. He committed legal grand larceny,
and I was out a total of $52,000! </FONT></DIV>
<DIV><FONT color=#000000 size=2> Do I use stops? For futures,
sure; for stocks, never again! </FONT></DIV>
<DIV><FONT color=#000000 size=2> Beware!</FONT></DIV>
<DIV><FONT color=#000000
size=2>
MWR</FONT></DIV></BODY></HTML>
</x-html>From ???@??? Sat Jun 26 15:27:15 1999
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Date: Sat, 26 Jun 1999 14:35:59 EDT
Subject: Learn from...
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Status:
If you trade for a living or want to, the use of stops should be a guide to
you about the quality of your methodology or system. They tell you if your
entry and stop placement are consistent with each other. Traders can have a
great entry method and still sustain frequent losses if their perception of
market support/resistance is not compatible with their system.
Physical stops are REQUIRED in order to evaluate the proper placement of
stops WITHIN your system. Having trained a few traders I will qualify this
next statement as my opinion but if you do not use physical stops, then you
are paper trading with REAL money. When you have a mental entry, don't you
call it paper trading? Well a mental stop is paper trading with money that
has already been committed to a trade and that is dangerous. Every trade
MUST have both an entry and an exit. If you only have an entry and no exit
then there is no system, no methodology. The stop helps to define part of
your system so learn from it, adjust it until it enhances your entry and
works for you not against you.
One final point. The use of a system requires discipline and patience even
if you are scalping the market. Placing a physical stop is part of that
discipline. Use that discpline to refine your methods/system. Most traders
evaluate their entry but rarely evaluate their stop with the same intensity.
If you are getting stopped out too frequently, realize that "based on your
entry", the stop must be placed further away. If the risk involved with the
wider stop is too large for your account, then recognize this before you have
lost everything, not after. Your stop can teach you many things if you will
only listen.
Lynn
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