Using Time Stops and Price Stops

September 17, 2010

One of the most important things we can do as astro-traders is to create a plan for getting out of a trade as soon as we enter it.

Every successful trade includes an exit as well as an entry, and if we plan for the exit when we are entering a trade we immediately improve our likelihood of making money in the markets.

The traditional way of planning for the exit is by using a stop-loss order, which specifies a particular price that will trigger an exit. If we buy a stop at $20 a share, for example, and put in a stop at $18, then we will automatically be sold out of our position if the stock drops to $18.

Setting stops in this way helps us limit the size of our losses, preserving our capital and keeping in the game. In the absence of stops, the natural tendency is to persuade ourselves that unfavorable trades will eventually turn around in our favor, and to ride a declining stock down to incur greater and greater losses.

As astro-traders, though, we should be aware that stops based on price are not our only way of planning for an exit.

We can also use "time stops" instead of price stops, planning ahead to exit a trade at a specific time regardless of what the trading price may be. This is an especially appropriate strategy if we are looking for a particular planetary transit to impact the price of a stock. Once that transit and its anticipated impact have passed, we can exit the trade.