We announce stop loss amounts to accompany nearly all of our trade decisions in the webinar we also strongly suggest a daily overall stop loss on the value of your portfolio. Both are merely suggestions and should be adjusted to your own trading style and risk tolerance. In order to avoid competing with other subscribers for trades at the same price, try not to use exactly the levels we announce. For example, if we are using a 5% stop on an option trade, and you get the same price we get on that trade, you might want to set your stop at 4.7% or 5.2% or some other approximation of this amount so you will be less likely to be trying to trade at exactly the same price as other subscribers. As the stops that we announce are only suggestions, you might also decide that for your personal risk tolerance, you will use a more conservative (but not necessarily more profitable) 3.5% instead, or 7%, allowing the trade more "room to move." Whatever you decide, try to stick with the same number on each trade for a number of days or weeks before deciding that it should be adjusted. Avoid allowing yourself to adjust stops more frequently, because more frequent decisions are more likely to be emotional.
 
Our own stops are tuned to the securities we are trading and are announced with the trades. They may range from 0.25% (one quarter of one percent) to 10% or more, depending upon the normal, expected volatility of the security.
 
A DAILY stop loss on the value of your portfolio is also highly recommended. We recommend about 5% for this value, so if your portfolio value drops by this amount at any time during the day, you would sell and not trade again that day. This helps to guard against emotional trading. You can't normally get to a 5% loss without making mistakes, and if you are in that mindset, it is best to get out and let your head clear for the rest of the day and overnight before trading again.
 
The exact amount of your daily stop loss is up to you, and depends upon your own risk tolerance, both your financial risk tolerance, and your psychological risk tolerance. Know yourself, and set this number above the level at which you are prone to rationalizing and perhaps acting in desperation. These behaviors are not faults - they are normal, human emotional responses to loss and our job is to understand when these psychological patterns are likely to be operating, to be able to take pre-emptive measures (such as using automatic stops and then leaving them alone!) and to be able to recognize when they begin to operate and then take corrective action.
 
All brokers allow stop loss limits to be set on individual trades. Some, like InteractiveBrokers.com allow these to be set automatically when your place your trade, using pre-set dollar or percentage amounts. The better brokers like IB allow you to use the bid, the ask, or the "last" price as the trigger for your stop, and then the stop may either convert to a limit order that is above or below that trigger level by the amount you specify, or, once the stop is triggered it may then convert to a "market" order to guarantee execution. Some brokers may also allow you to set overall value stops on your whole portfolio, and automatically liquidate your holdings there, or at least issue you an alert if this overall portfolio value stop is hit.
 
We strongly recommend using automatic stops if possible, because the whole idea is to remove the emotional component from the equation, and if you rely on yourself to enforce a "mental stop," then you are expecting yourself to be unemotional just when you are most likely to not be acting rationally, in the face of a mounting loss!
 
Removing or adjusting stops may be tempting, if for example, your automatic stop happens to be just at the level when you are expecting a floor, based on charting principles, but if you save this decision for when the stop is about to be hit, then moving the stop is almost always a bad idea. Try to look at the level of the stop right after the trade and the stop are placed, and make your decision THEN on whether to RAISE or lower your stop. Don't save that decision for when the stop is about to get hit - you are not likely to be in the most objective frame of mind at that moment. KNOW YOURSELF and use stops accordingly, to help you avoid pitfalls that you have seen in your own trading patterns.
 
You can learn how to use stops that work best with the securities you trade and that work best with your own risk tolerance by using a paper-trading account. InteractiveBrokers.com has these, and they operate exactly the same way a live account operates, including "charging" the account for normal fees and commissions, so you can practice as long as you want to at no cost and no risk, until you are confident that you can profitably trade a live account.