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. With this is mind I have decided to revisit the topic of setting "stops" from the May 6th edition of the Sterling Weekly.

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 Second Rule for Trading, "Always set a Stop Loss when Buying a Stock or Option, know your maximum risk!"

A "Stop" order is a limit order that is triggered upon a specific price being reached. An example of this would be a "Sell Stop" at $40/share on the shares of ABC Corp. when the price of the stock was $45/share. The sell order would not be triggered until the price of ABC shares reached $40/share, then it would become a market sell order.

Every investor or trader should consider the possible scenarios regarding the exit of an investment or trade before it is ever made. This includes the price or the situation where an investment is considered successful or a failure. Experience in the market has long proven that there is considerable more time to exit a winning position than there is a loosing one, so it is far more critical to determine when to cut your losses and move on than it is to take profits. Determining at what price levels to set your stops varies depending upon your investment philosophy. For example, Investors Business Daily recommends setting "stops" at 8% below your purchase price. They believe that investments that decline more than 8% very seldom recover and become profitable. Sterling Investment Services has a primary focus on "Technical Analysis" a/k/a charting, and our philosophy. is to set "stops" based upon levels of support and resistance that would indicate trend reversals and a change in the expectations of the trade entered. Regardless of your investment philosophy, the important thing is to set "stops" and learn to trust them and live by them.

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Today's Opinion: Closed @ 982.82 Current Expections: Called lower with a Sell Signal on the close of July 15th @ 1,000.42 . The S&P 500 should move lower and test 974.50 While I am only slightly surprised at the divergent trends between the S&P 500 and the Dow Jones Industrial Average 'INDU', this is not the 1st time I've seen this happen.

Current Opinion: Closed @ 1,267.38 Current Expectations: Called higher with the close on July 22nd @ 1,257.63. The NDX should move higher and test 1,298.37,and then 1,325.80 on a closing basis.