Momentum Trading: Calling a Halt to Missing Stops

When I was young, my mother taught me how to daytrade. OK, not really, but she did teach me how not to lose at daytrading. No, we didn't discuss the intricacies of the market at bedtime. Rather, it was the simple pearls of wisdom she gave me throughout the day that taught me right from wrong (even in the world of daytrading).

Along with "don't talk with your mouth full" and "look both ways before you cross the street," she passed on a bit of advice that would keep me from losing large chunks of my portfolio: "Make a plan and keep to it." How does this translate to not losing at daytrading? Make a plan not to blow your stops. Decide on a stop and keep it.

Keeping a good stop is the No. 1 reason daytraders don't lose. A stop is the predetermined price at which I exit a trade in the event it goes against me. Like all the advice my mother gave, I didn't learn the lesson until I disobeyed it. Here is a common scenario and one that I faced as a beginning daytrader early on in my career. I call it the "death spiral." ...