Stop Loss is not always your friend...

[Kylie9090]

Still on my demo account, but I plan to trade for real in the not too distant future. I plan on using the longer time frames, probably daily. So I expect some of my positions to last days, maybe weeks. I don't think I could sleep if I did not have a stop loss there, just in case the market swings big time while I am at work or sleeping.

Unfortunately, this stop loss hunting thing has me worried now as well. Seems like you can't win no matter what you do.

 

[tech/a]

Still on my demo account, but I plan to trade for real in the not too distant future. I plan on using the longer time frames, probably daily. So I expect some of my positions to last days, maybe weeks. I don't think I could sleep if I did not have a stop loss there, just in case the market swings big time while I am at work or sleeping.

Unfortunately, this stop loss hunting thing has me worried now as well. Seems like you can't win no matter what you do.

If your trading method is enhanced by using stops then use them.
If you don't know then find out through testing (preferably with software so you have an adequate sample size)
with and without stops.

If you don't know and its simply for peace of mind then your not ready to trade yet as your don't know if your putting stops on a method which hasn't a hope of trading profitably---with or without a stop.

 

[rb250660]

...just in case the market swings big time while I am at work or sleeping....

If you fall victim to an opening gap nothing will save your capital. Have a look at ACL late last year. As wysiwyg said, when your analysis is proven wrong, that's when you exit.

Intra-day stops being tagged when they're gunning for them is a big issue too. Last year I was watching LNG (30/6/14), it opened ok, dropped 17% intra-day and closed flat. It then continued the trend to rise 100% from there over the next 4 or 5 weeks. I'd be pretty upset if my stop got tagged in that case.

 

[Boggo]

It then continued the trend to rise 100% from there over the next 4 or 5 weeks. I'd be pretty upset if my stop got tagged in that case.

Aaah, human psychology, the most expensive trading item you will ever get for free.

 

[rb250660]

What?

 

[tech/a]

What?

You know the stock turned and rose 100%

But as its happening human nature keeps saying in the back of your head
Its going to turn up soon

Then when it doesn't Human nature says---crap I don't want to liquidate a $500 loss---I'm holding it will turn up.
Then when it doesn't Human Nature says---crap now its down $1500 no way am I going to liquidate that loss---Im holding it cant keep falling.
Then when it DOES Human Nature says---Down $5000 Ill stick this in the bottom draw---Everyone who has sold this is crazy----Ill hold it will come good.
I haven't copped a Loss because I haven't sold it---RIGHT!

Boggo is SPOT ON!

Aaah, human psychology, the most expensive trading item you will ever get for free.

 

[Boggo]

Thanks tech/a, you explained it perfectly.

Bottom line rb250660, a stop is a process. When it is placed it is there to protect you from a loss if you are wrong.

Should a stock or whatever turn back up after your stop has been triggered then if you can choose to re-enter, it is now a whole new trade process.
The only thing that is the same is the name of the entity (and maybe your stop trigger point if the last point is still a valid one).

Treat it as a mechanical process using numbers, start involving woulda, shoulda or coulda and its gambling.

Not having a go at you, if you look back at it just look at why it turned up.
Was your stop too tight, was there positive news, should I have looked at a longer time frame, did the Dow jump 500 points and carry it on the wave of emotion etc etc.

 

[Nortorious]

Thanks tech/a, you explained it perfectly.

Bottom line rb250660, a stop is a process. When it is placed it is there to protect you from a loss if you are wrong.

Should a stock or whatever turn back up after your stop has been triggered then if you can choose to re-enter, it is now a whole new trade process.
The only thing that is the same is the name of the entity (and maybe your stop trigger point if the last point is still a valid one).

Treat it as a mechanical process using numbers, start involving woulda, shoulda or coulda and its gambling.

Not having a go at you, if you look back at it just look at why it turned up.
Was your stop too tight, was there positive news, should I have looked at a longer time frame, did the Dow jump 500 points and carry it on the wave of emotion etc etc.

Great post Boggo, couldn't agree more. Process is everything, plan the trade and trade the plan.... if not, head to the casino and bet on 22 at the tables.