Dynamic Trend Profile

Calculated Risk versus Real Risk:

Risk is a part of investing and the price you pay for a potential reward. Investors have different levels of risk tolerance. The Maximum Risk selection allows the investor to define his or her own personal risk level.

Lower numbers in the Maximum Risk column are preferred; the higher the number the more dollar risk you are going to take on the trade. The DT Matrix automatically generates for each trade a Trigger, Stop and Target area. The calculated Risk is the difference between the Trigger and the Stop levels. Please note this risk is per share. The actual total dollar risk is a function of the number of shares you trade.

For example (located below), if you have a buy (long) Trigger at fifty dollars and the Stop is 47.56, the Risk will be $2.44 per share ($50.00 - $47.56 = $2.44). If you decide to trade a one thousand shares, your potential risk is $ 2,440. If a $2,440 loss is too much risk (beyond your risk tolerance), you should not consider this trade.

Remember that the calculated risk can frequently differ from real risk which could potentially be unlimited. In the above example, the calculated risk is defined as $2.44 per share. If we find this risk acceptable, we take the trade hoping it hits our target and not our stop loss price.

If a trade becomes unsuccessful, the predetermined Sell Stop is used to limit our loss. In reality, there are infinite numbers of risks that we cannot always anticipate. Other risks to be concerned about when defining a stop loss price are as follows:

* risk of rumors

* risk of margin calls

* risk of higher volatility

* risk of lower liquidity

*l risk of wider spreads

* risk of rapid movements in market conditions making it impossible to execute stop loss orders

* risk of unexpected news announcements causing a sudden unexpected movement in the price of a stock

* risk of high volume trading occurring at the market open or close resulting in delays of order execution or confirmation

* risks of systemic computer or communication system failures or problems, slow or delayed response, trading halt and inability to establish access to the trading system/network (may delay processing of buy or sell orders either in part or in full)

At times, market conditions make it almost impossible to execute our stop loss orders where we want out. While we would like to limit our loss on a trade, we must always recognize that unexpected events could cause, for example, a large gap opening or bad fills which render a stop loss price ineffective. Placing a stop does not guarantee a fill at that price. If a stock price trades at your stop or gaps through your stop, your order then becomes a market order.

You may be filled at or near your stop price. However, based on factors such as liquidity or market volatility, your stop order could be filled at a vastly different price (resulting in an increased original risk).

In certain cases, the exchange may halt trading a stock or futures contract resulting in a gap opening when trading resumes. The only real obligation a broker has is to get the best fill possible at the time your stop is triggered. A stop loss price is not a guaranteed price, and our real risk in a trade is always unlimited.

Remember that mental stops are not stops until you place them in the market. Therefore, always have stops in the market.