The important thing about using indexes to help your trading was mentioned earlier. During Bull Markets, you can expect 65% or more of all stocks to be rising – so if you look to buy during Bull Markets, odds are very much in your favor. Of course, opposite is true with Bear Markets. Another characteristic of these two markets is that Bull Markets generally last 2-3 years, while Bear Markets last only 1-1 ½ years. So it’s a very good idea for new traders to get in habit following indexes early in their learning. This will give you a tremendous advantage.

Buy Stop – The description above pertains to a “sell stop”, but there are also “buy stops” that can be very useful. These are used to enter a position at a certain point. Suppose you’re using a trading system requires that you buy when a stock breaks above a certain price level. Let’s say that you are waiting for IBM to break out of a channel and to do so, it would need to reach $51. In this case, you simply place a buy stop at $51 for number of shares you desire and your online broker’s system will buy that for you automatically whenever IBM hits $51. The only thing you would have to do and check back occasionally to see if order has been filled.

These two tools, sell stop and buy stop are invaluable to traders – especially those who are just starting out. Make this a habit from day one in your trading – ALWAYS place a stop loss immediately after getting an order filled. Obey this rule and market will never hurt you very badly – you’ll take a hard sting every now and then, but you’ll stay alive to come back another day!