The Globe and Mail

If stop-loss orders were a religion, Blackmont Capital's Mike Newton would be its high priest. "I use them on everything," he says.

In the event markets take another dive - or even if they soar - his $150-million portfolio is loaded with preset triggers to cut losses and lock in gains.

Last year's market meltdown and subsequent rally has only reaffirmed his faith in conditional orders. "Stop-losses are about the only thing that I've seen really work through all types of markets," Mr. Newton says.

A stop-loss can be used to protect a potential profit when a stock has run up, or it can limit a possible loss. For example, if a stock purchased at $10 has a stop-loss placed at $8, losses will be capped at $2 a share. Stop-loss strategies vary and are just one of an arsenal of conditional orders that give do-it-yourself investors the ability to pre-program their entry and exit strategies.

Conditional orders are the best way to limit market risk - and emotional risk as well, Mr. Newton says. "A mental stop is not going to take you out of the stock. You're just going to lie to yourself."

The real skill on conditional orders is where to set them. If you place them too close to the trading price they could be triggered by volatility unrelated to the specific security.

In addition to losing a potentially lucrative position, investors could rack up unwanted trading fees.

Sometimes we get married to positions and we don't want to sell them because they're winners. — TD Waterhouse Group vice-president Kathryn Del Greco

Exactly where to place an order in relation to the trading price is up to the individual investor. You can choose whatever feels right, using target prices and trading ranges from fundamental analysis, or pick support and resistance levels from technical charts.

As a rule of thumb traders generally set orders within 10 per cent in either direction of the current price. Mr. Newton says he goes on high alert when his entire portfolio moves 10 per cent in either direction but it's best to decide on a stock-by-stock basis, based on the volatility of the each.

"A uranium name or an oil name is going to be a lot more volatile than Bell Canada or an income trust, so using a set percentage doesn't really work," he says.