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Coach's Playbook Posted by Team Topstep February 24, 2021

Using Stops in Day Trading

We’re going to take a shot and assume that most of you have used stop orders at one time or another. Here’s our question; when, if ever, is the right time to adjust your stop? This week, the Topstep coaches step into the ring to take on the debate of using stops in day trading and taking profits.

Funded Trader Shoutout

The stock market rips keep coming; just ask funded trader David E., who put up an impressive $2,600 day by catching a few Nasdaq moves.

As the Fed stepped in to squash some inflation worries, the swings in equity futures started to get wider and wider. It takes nerves of steel and lightning reflexes to trade the Nasdaq when it’s whipping around. Even the most seasoned veteran traders get scared off by how fast this market can move.

It’s no secret that trading isn’t easy, so when we see one of our traders putting the work in, booking big numbers, and building their account, we have to tip our hats to them.

The Stop Discussion Continues

This isn’t the first time we’ve brought up the subject of moving stops. We get questions about it almost every day. The plain truth is, there is no definitive answer when it comes to adjusting your exit strategy. Everyone trades differently, risk parameters can change, and trade setups tend to evolve with time. 

However, you can follow some simple rules to keep you from getting out of a good trade too early.

First, it’s important to give your trade a little room to breathe, but you also don’t want to let a winner turn into a loser. A simple solution to this is to set a time limit. For example, let’s just say that you bought the Dow futures, and after 30-minutes, you’re not seeing the follow-through you were expecting. As a day trader, 30-minutes is a reasonable amount of time to wait, and at that point, it’s OK to start thinking about tightening up your stop or even move it up to the break-even level. Timing can be just as important as finding a good entry level.

You might also want to consider trading multiple contracts for the simple purpose of locking in some early profits while still remaining in the trade. When you take some money off the table, you will be less inclined to want to move your stop, and it can also prevent you from needlessly over-managing the trade

Don’t forget that predator algos are real; they’re designed to do nothing but flush weak money out of the market. Prematurely moving your stop is a sure way to take yourself out of a trade too early.

Trade Well!