This is one of the simplest tactics for keeping your capital intact, but one of the most difficult rules to keep for a trader hooked on the excitement generated by the experience of a winning trade. There are no hard-and-fast rules for stops. You will have different limits for stops, depending on what stage of the day you are trading.

For the market-open trading, stops have to be very tight. Essentially, I exit my position at the first sign of trouble for my position. The process is the same whether I enter either a long or short. When the security stops moving in the direction I expect, I liquidate immediately. This may mean taking a small loss. Similarly, if I have made a small appreciation of something like $ 1/4 or $3/8, I often exit to preserve that profit at the first sign of trouble. The only time I do not exit at the first sign of a slowdown in the direction of price movement favoring my position is when I have made over $1 and the market conditions suggest that the pullback is a continuation rather than reversal.

You could see me exit with a loss when the price movement was not as expected for NMGC. Other than that, I exite at the first sign of trouble for all the other positions I took and thereby preserved my profits. This should tell you how often I try to ride out continuation patterns during market-open trading: not often.

If you find that post open market trading fits your personality better, you need to set stops that are not as tight. Stops in market-opening trading kick in as a result of a slowdown in price movement and a shift in the side of the market favored by the market makers. The same in the post open trading would be harmful to your capital. When trading in post open market continuation patterns, or if you must, reversal patterns, you have to set a reasonable loss limit to allow the pattern some room. Typically, anything more than $3/8 is a bad idea, but much less will lead you to cut losses too early.

If you are active in the next phase market and trade breakouts, you need to revert back to the tighter stops. The reason is that market open and close trading require tighter stops is that the price movement tends to be more violent, and reversals equally so, which can leave you in a losing position that is difficult to close out of.

By keeping these types of stops, you preserve your capital. However, if you start to enter illadvised trades, trades that violate your own personal set of rules, no type of stop will save you. There are many reasons traders enter ill-advised trades, from trading on emotion and looking for thrills to feelings of omnipotence because of a modest winning streak. Generally, these and other reasons for failure happen because traders focus on the wrong thing. The only worthwhile thing to focus on is the process of performing disciplined trading.