There are two cardinal rules to successful stock market trading that I’m sure you’re already familiar with.

The first of the two most common stock market trading rules is to cut losses. The second of the two most common rules for successful stock market trading is to let your profits run. However, you can go a step further by tightening your trailing stop losses and looking for more risk once your stocks make a profit. Increasing your risks, at the right time, can allow you to get as much profit out of your system as possible. You may want to test the effects of these successful stock market trading rules by having a trailing stop loss that is wider than your initial stop, and see how this reflects in your system.

For example, you can set your initial stop loss at two ATR but set your trailing stop loss at three ATR. This allows the stock, once it is in profit, to have a little more room to move. You are still limiting your risk at the beginning of the trade by maintaining a strict stop loss; however, you will become a risk seeker in a profitable situation. That is, you will be willing to risk more once you already have a profit.

Personally, I think this is one of the many successful stock market trading rules that you can use to go a step further than most people are willing to go. With this strategy, I also mix and match my stop loss methods. For example, in one of my trading rules, I set my initial stop loss at 2.5 ATR, but my trailing stop loss is calculated using a completely different method. I use what is known as the lowest low stop. The way this stop loss works is to find the lowest low in the last X periods and base your trailing stop loss on it.

Now for that trend following system, I actually found the lowest low in the last 40 days. I then place my hundred stop below this low. It is almost as if you are querying price action by identifying where the lower low is, and this can be very effective. Many times my stop has been set a hundred below a support line.

The way this trailing stop loss works is that each day a new trading day is added to the chart and one of the previous days is removed. I then look for the 40-day low and reposition my stop at that point, if necessary. This stop has been extremely valuable to me, and it may be a stop loss that you may want to consider testing.

But, before looking for the perfect trailing stop loss, keep in mind that it is very similar to the initial stop in its own way. There is no perfect stop that is guaranteed to get you out of the action at the perfect time and save you the most profit.

Sometimes it will work for you. Other times it won’t. The real key and secret to having a stop loss and trailing stop that works best for you is not how you calculate it, it’s simply having them in place.

You need to find an initial stop loss and a trailing stop loss that you are comfortable with. You also need to understand how they work so that the actions they tell you make sense to you. How do you find a stop you feel comfortable with?

Try them. Choose from a large number of stock charts that you have been looking to trade, and mark where you would receive an entry signal, set various trailing stops and trailing stops. Progress through the trade, repricing your trailing stop loss and see which works best.

Often successful stock market trading rules are designed with simple concepts that work best at this point. When you base your system on understanding, rather than optimization, you’re more likely to stick with it. If you can create a good, simple set of your own stock market trading rules, you’ll be able to apply it across multiple markets on most trading instruments. Actually, when designing any system around a set of stock market trading rules, all components must apply this same principle. You want to keep things as simple as possible, that way it’s robust and can be applied to any market. As long as you follow this underlying principle, you’re on the right track.