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I get more questions about stop losses than about any other subject. Clearly this strategy causes traders a lot of pain and confusion. Some of it stems from the schizoid nature of our modern markets. But most of it reflects an underlying weakness in trade management skills. What takes place at the end of a trade usually reflects decisions made at the beginning. In other words, the best entries usually lead to the most profitable exits. This is the most urgent wisdom I can give when it comes to stop-loss placement. We can spend hours deciding whether a stock is a good buy or a good sell, but this emphasis is often misplaced. Over time, carefully chosen exits are more important than great entries. You don't believe me? Just ask all...

In the first part of this article, which can be read here, we looked at choosing an instrument and timeframe to trade, as well as establishing the set-up and entry rules. In the second and final part we will consider how to establish exit rules as well as various filters and money management rules to maximise the profitability of the system. 6. Stop Loss Rules. Our strategy already has a natural stop loss in the stop order that does not get filled. The objective of the strategy is to capitalise on those days where the high or low for the day is in place early (9.30-11.45am). If we enter a trade on a breakout of either the high or the low and then the market subsequently hits the other stop we know that our trade is invalid. We know...