ABSTRACT
This chapter explains two kinds of stop orders, or, rather, two entirely different uses of the mechanism of stop orders. The stop level should be marked on one's chart as a horizontal line as soon as an actual or theoretical transaction has been entered into, and it should be maintained until the transaction is closed. The protective stops offer the average trader, the man who is not able to spend his entire time studying the market, or who has not had long experience, a device by which he can limit his possible loss. Average True Range is an interesting concept and tool. It is a measure of volatility, in actuality, and tracking it gives people some interesting information. Although two stocks may be selling at the same price at a given moment, people would expect a high-beta, high-volatility stock to make wider swings than a low-beta, low-volatility stock; therefore, people will set their stops wider on the higher volatility stock.
