I just finished reading Tim Sykes article on Limit v. Market orders over here. He writes *A LOT* so its tough not to see something he has going on out there on twitter, or his blog. It of course prompted my own thoughts on this concept of stops. He’s been trading a lot longer than me and seems to have worked out a small, risky niche that’s profitable, so take my beginner talk for what its worth.

Stops are a necessary part of any investors arsenal. There are always times where you want to put plays on cruise control, and have safe stops so that when your investment dips, a trade is executed that keeps you from loosing a ton. If your in a youngling phase of your investing career like me, though, and investing in longer term plays, focus on using your stops for protecting GAINS, not losses. Don’t ignore stops, just put them on the back burner when your getting started.

Intraday swings can really eat away at you if your not careful and you will have exited a positon that you didn’t want to get out of. I’m not saying ignore downward movements in your stocks. They can definitely send signals to you to get out. Concentrate on using stops to protect PROFITS. Set an overall loss % for each play (something like 8-10% is prolly good but I tend to question that number with smaller caps), and monitor it best you can. I don’t get hung up in micromanaging short term moves unless something major goes out of whack with the company. That way you aren’t hugging your position and getting stopped out of longer term plays.

I recently had a good example of this recently with SIMG. I bought into the company at $4.47, and watched it dip the next day to around 4 bucks, where I actually added to my position. If I would have set my stop religiously, I would have been out of the play for a nice solid loss. Since then its been on a good run, moving up over 7 bucks. While that move has been happening I have been setting and adjusting my stop about .25 points under the closing price, thus protecting my profits. Now I’m making money with each move up. I believed in the work I did before I put my money in.

So spend your time on your front end analysis, not “overwatching” your value plays. Remember we’re talking about longer term plays, and short term volatility might bounce them around during the longer term trend that you are playing.