I have a problem. I have blown stops about 3 times in a year. Usually they coincide with huge reversals and consequently enormous drawdowns. Like this weeks bottom, I was short ES at 792 and had a order to reverse and go long at 791 and an initial stop on my 792 short at 794. Some little devil in me (I guess he's called greed) decided to pull the cover and reverse order at 791 and so I remained short as we neared my original stop at 794 and I PULLED THE GOD DAMN THING! And much to my grief and disbelief the market didn't turn back and I didn't want to cover for a loss when it retraced back to 796. And on went the market for two days and surprise, margin call. I got out at 830. Obviously if I was better capitalized I could just sit through this painful short covering rally. But I think the problem would have occurred exactly the same if I had more money in my account, I would have been short more contracts. Normally, my trading results sans these blow ups are quite respectable. I have doubled my account several times in the past year. But it is all within the framework of these huge drawdowns, so I am pretty much breaking evenÂ@(currently down 2k for the last 12 months) I wanted to know if anyone had a suggestion to keeping out of harms way? I can't understand why I unconsciously have so much trouble with this simple rule. I think it has to do with wanting to be right. I practice self-visualizaton. I go through the process of being wrong, I let the burn hit me and then I see myself keeping the stop in. But in reality, I pull it. WHY THE HELL AM I DOING THIS?Â@And more importantly, how do I prevent myself from doing it in the future? Has anyone out there overcome this chronic problem and become a successful trader because of it? I don't mind drawdowns in my account, AS LONG AS THEY ARE A MATTER OF MARKET DYNAMICS. But when 90% of my drawdowns are a direct consequence of actually deleting stop loss orders and then watching for days in shock as I get margin calls, I become sick and depressed at my stupidity. I do have faith in my system. Sometimes it tests me with trades I don't want to take, but that is not a horrible problem, I still take them--when I am flat to open new trades. I didn't get a reversal signal at 791 I got one at 794, but instead of being humble, I waited for the sell signals which never materialized until 800. And lo and behold I had a chance to get out for a small loss at 896 when the markets retraced from HOD, but NO I couldn't bear the pain of being wrong!!! Instead of going flat at 805 end of the day I held on. ANd held and held. Until margin man came a knockin. I think part of this confession is a hopes of being humiliated into changing my behavior. Accepting that I can't be right everytime and moving on to more positive and constructive means in my trading career. All in all I think I am a fairly good trader and this really is my only problem in trading. I hold my winners and let them ride AND USUALLY, I honor my stops. When this happens trading isn't apple pie, but it works and my account grows substantially time after time. Someone please lead me to the holy grail of trading HONOR THY STOP.
Been there, done that. One writer says that you are in for an eventual "forced awareness" where you will find yourself unable to trade anymore because of this behavior. Hopefully, you can shape up before that happens. If you blow the loss point initially you must without question immediately get flat and log out of your brokerage account for the day. This will save your ass and help you change this pattern. Their is no magic, you either will do what needs to be done or you won't (and lose all your money).
Your problem has, of course, many angles. The first angle that came to my mind you already mentioned: not wanting to be wrong. The second would be that when you take a trade you need to understand that it is only one single opportunity in an array of almost an infinite number trades/opportunities that you can make. When you realize that there will always be another opportunity to make a killing you may not think that you have to stay in a trade to make it "work." Just take what knowledge you can from it and get back to finding another opportunity.
Examine your accnt values vs the timing of your stop removal behavior. Is it possible you have some subconcious self worth issues implanted some where along the way that won't let you succeed beyond a specific monetary value that would force you to change your image of yourself. Possibly one you don't believe you could live up to. You are after all using instruments of the exact same toolset that enables your successful periods to destroy yourself. This behavior pattern is far from unusuall ,it's just more apparent in trading because of the instant feedback.
Once you have placed your bet and entered your stop - then get up and walk away from the screen. Its up to fate. Only return if it moves in your direction (increase your trailing stop or take profits) or to exit the position if you use a time stop. When you just sit there, sometimes you act without thinking clearly. In other words, you need to detach yourself from the situation. IMHO
I have a question how many times have you pulled your stop to then do better on the trade. I have seen many traders pull their stop and be breakeven for months only to get hammered every three to four months. If you frequently pull your stops, you really have no way to measure what kind of system you have or what kind of success you have. And if you pull stops you can be sure you will pull a niederhoffer or however you spell his name. (yes, I decided to make pulling a neiderhoffer more relevant since he keeps acting like he is a trader it is time his name is attached to something more relevant than a bankruptcy petition).
To my memory, I don't have many winning trades as a result of pulling stops (only one this year for +10) But considering I lost 35 pts for blowing a stop, the system is working itself out just fine, stops DO make money even if they take it first. I trade on 60 minute bars for signal confirmation. When a 60 minute bar is violated in the direction of the trend, they tend to stay there, unless its an exhaustion bar and in that case I am DEFINETLY wrong to be in the trade and a stop is more valid than the signal I entered on.
If you have multiple contracts, scale out your stops. I like to use .5 increments in the S&P on the .25 and .75. In addition, I use the OCA order to link a stop with a limit. Better luck.