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Monday, March 09, 2009

Traders Most difficult Problem- Trading with Stops


Lets say you go long the market at XX, but the market moves lower, so at this point you think that you've got an even better deal to average in on your original entry. Do you really know the future and how far this trade will go against you?

I'm bringing up a point of a major problem that I've faced as a trader. STOPS.
When I'm in the zone, I will exit a bad trade for a small loss and move on to the next one. When I'm trading relaxed or I've built a cushion of profits from previous days I will let my guard down and give a bad trade more room to breath and end up losing more money than I should have. Have you ever lost weeks or months worth of profits from being too relaxed or by breaking your "rules"?

Have you ever averaged your trade or widened your stop? There are a couple ways to deal with your problem of NOT taking stops.

1.Take out excess money in the account to the point to where you can only put on 1 trade and not be able to average into it.

2.Trade with a platform that has an automated risk management parameter that will close your position when you are down XX amount for the trade or reached a max daily loss.

3.Start working with another trader that can help train you on using stops.

4.Realize that you are not trading with a plan/system before you put on a trade, because your plan was for the trade to work in your favor immediately and not let it run against you.

5.Develop an Automated Trade System that will trade for you and take your emotions out of the trade.

Here are some of my Key Posts dealing with stops and problems traders face-

Realistic Expectations of your Trading Results

Dr. Brett goes over A Few Trading Psychology Observations

The stock market ruined my life

For FX.

7 comments:

FX on 2:52 PM said...

Thanks HPT. I was thinking about solution #1 lately I'm glad that it's not just my imagination when I see that you recommend it also. #4 is interesting. Other solution are not so close to be realistic for me right now.

I'm glad that we are all here to help each other and I understand from where you come (what point of view) when you want to give me a hand.

Realistic expectations is the point where I fail, or why I fail. Success here (in trading) is compensation for many other things. I need unrealistic success to fulfill my need. That's why I think it's not so easy solvable by correcting just my actions in trading. It doesn't touch the root. But everything is at least a little step and also part of the learning curve.

HPT on 11:41 PM said...

When I read your blog and you go over your trades for the day you remind me of myself, which IMO means, you need improvement in risk management and trade setups (you place a trade at XX, a good risk/reward would have you place stop XX from entry). Working on developing an Automated Trade System has opened my eyes a little to seeing how you should just put in the stop and leave it alone, because the profits can be huge when your right and more often than not the stop will save me from a bigger loss.

FX on 3:41 AM said...

We can say about you that you are now headed in completely different direction than was before with your discretionary trading. Automated systems are new ball game and I didn't thought that you will go in direction of that type. I'm surprised. Well who knows where will things end up for me.

HPT on 5:50 AM said...

There's nothing wrong with discretionary trading for guys like us, but I believe having a trading platform with a max daily loss should be used because of our repeated bad habits that never seem to go away despite all the "rules" that we've come up to prevent big losses from occurring.

Jules on 6:18 PM said...

HPT,
Totally agree with you. You're still as inspiring as ever. Trust you're trading well and enjoying a balanced life.

HPT on 7:53 PM said...

Thanks Jules. Although I'm not as vocal as I use to be, I still frequent your blog and read what you've been up to.

Jules on 5:28 AM said...

:-) Then you must have seen my first stopped out trades in months! Strangely, it felt good...

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