Why You Should Place Stops
There are several advantages to placing stops. First, by the very nature of establishing a stop level that is either physically or mentally entered, you are preparing yourself for the worst. In the case of profit-taking stops, it will be a mental preparation of an optimistic outcome. Quite often, when prices go against you, your emotions become clouded, making an objective decision harder to accomplish.
Placing the stop helps to overcome this problem because the decision to do so will be made when your mind is more equally balanced. If prices move sharply in your direction, it is often accompanied by good news, so good in fact, that it is easy to fall into the trap of believing that the price will continue to trend forever. That, unfortunately, is often the point when the price will reach an extreme.
Another advantage is that a correctly placed stop will usually get you out at a better price than just throwing in a market order. This is because a stop order is executed as a market order, once the stipulated price has been touched. If you are just watching the market and suddenly decide to stop yourself out, it is quite possible that the time delay will result in a far worse fill.
