Keep Yourself in Trades by Widening Your Stance

In golf, when you are putting in the wind, you have to widen your stance.

In volatile markets, this rule can be adapted to apply to trading as well. It may seem like strange advice, but in times of extreme volatility, you need to widen your stop-loss points. Most people think you have to do the opposite and tighten them.

Let me explain: When the market is swinging back and forth wildly, movement within a day can knock you out of a position. Then, when the market swings back in the direction you were counting on, you will have been stopped out… and missed the gains you should have had.

It’s frustrating when a trade goes against you. But it is even more frustrating when you are in a trade, get stopped out, and then the trade turns around.

Take my advice and loosen up your stops a little. You still need to set stop-loss points, but when the market is volatile, you want your stops to be nearly impossible to reach within normal market activity. What constitutes “normal” activity keeps changing. What seems normal now would have been considered insane just a few months ago.

Comment on this article

Inspired by his high school economics teacher, Rick Pendergraft fell in love with the markets at an early age. He entered his first investing competition at 17, and opened his first brokerage account before he finished college. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. After a ten year career in banking, Rick decided to pursue trading full-time. To get his foot in the door, he started out in the sales department at Schaeffer's Investment Research. It was not long before his talent was recognized and he was invited to apprentice under Bernie Schaeffer, one of the top options traders in the world. Rick thrived in his new position and twice received the award for "Top Trader."Rick has developed a loyal following of readers who are grateful for his timely warnings and profitable advice. He is widely recognized as a market expert and has been frequently quoted by Reuters, BusinessWeek, Forbes, USA Today, the New York Times, and the Washington Post. Rick's primary focus is on identifying short and intermediate term rising and falling trends in the major market sectors. His analysis is based on technical factors along with indicators of market sentimentRick lives near Delray Beach, FL with his wife and three children.