For the last couple of weeks I have been commenting in the Sterling Prime Stock Letter about the apparent narrow trading range the overall market has fallen into. Not only does this make it difficult to identify new trends in individual stocks for trading opportunities, but it causes increased volatility combined with smaller moves in what you may be attempting to trade. What this results in is smaller moves in the expected direction, the need to be willing to take profits sooner, and re-emphasizes the need to correctly use "stops" to protect your positions. One of the key things to maintaining profitability in trading is to protect your profits and limit your losses.

Over the years I have developed 11 "Rules for Trading." I am currently in the process of writing a series of articles for Stock Upticks covering these 11 Rules for Trading. From time to time as I have felt there were relevant reasons to do with the current market activity I have discussed a couple of them in the Sterling Weekly. Now is a very good time to discuss the Third Rule Rule for Trading, "Move Your Stops Up (or Lower for Short Sales) to Lock in a Profit as Soon as Possible"

While the 1st Rule of Trading, "Never let a Profit Turn into a Loss!", was designed to provide guidance and assistance with trading a security near its cost basis. The 3rd Rule of Trading, "Move Your Stops Up (or Lower for Short Sales) to Lock in a Profit as Soon as Possible", is designed to provide guidance when a stock has moved more than a minor amount above its cost basis. One of the most important parts of being a successful trader or investor is to avoid taking unnecessary losses that erode your profitable trades. The 3rd Rule has 2 parts, the first is to set your initial Stop a minimum of $0.25/share above your cost basis. This level above the cost basis was chosen to provide a level of protection from the volatility or rapid movement of a stock price. With a $0.25/share margin, if the stop is triggered in a rapidly moving market, the execution price should still produce a profitable trade.

The second part of the 3rd Rule, is to periodically move your stops higher. The theory behind the second part of the 3rd Rule is simple enough; as a stock moves higher the chart will show levels of support and resistance that can be used to adjust your stops to protect profits. This is useful for both short and long term trading. It isn't hard to see how following this rule would have benefited the shareholders of Worldcom, Enron, and a whole bunch of other companies that have fallen from spectacular highs to horrific lows.

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Today's Opinion: Closed @ 980.59 Current Expections: Called higher with a Buy Signal on the close of trading on August 8th @ 977.59 . The S&P 500 should move high and test 998.68 and then 1,007.84 On another note, since the Aug. 5th edition, on Tuesday Aug 6th, the S&P moved through our lower target of 974.50 with a close of 965.46

Current Opinion: Closed @ 1,23.14 Current Expectations: Called higher on August 9th with a close of 1,223.14. The NDX should move higher and test 1,267.38 and then 1,298.37on a closing basis.