The only time I use a stop loss order now is if I have to leave the computer for awhile. I used to set them all the time then watch in agony as the market moved inexorably to it, usually to the very penny, activated it, then gleefully headed back the other way. I know this is all in my head because you donât remember the ones that arent hit, still I had a feeling that something wasn't right. Then I ran into the Phantom. A lot of you have probably already read "The Phantom's Gift" and it may have already come up here on the board but for those of you that haven't you can find it at daytradingstocks.com under one of the education headings. The Phantom is a futures trader primarily who has been around for awhile. The book is kind of a hard read as its in the form of conversations and there are a lot of side trips but there is a lot of good information there if you take the time to go through it. Like a lot of traders I accepted the phrase, " let the market prove you wrong", as an axiom. The Phantom says that this is opposite of what you should be thinking. He says YOU must decide when your wrong, not the market and this made a lot of sense to me. A lot of times I would let the market move toward my stop long after I knew my trade was wrong. Now, as soon as I get the feeling I'm wrong, I'm outa there. It has increased my bottom line. I highly recommend reading this work if you haven't already done so.
This is something that I'm learning as time goes on. It used to be that I either hit my stops or exited at a profit. Now, I find I rarely hit my stops as I recognize that my premise for the trade is gone and I exit. This has had a negative effect on my win/loss ratio, and a positive effect on my bottom line. JB
Great Posts! I find myself in the same position many times. If I set a hard stop (mental or an actual order) and prices start moving toward it, I usually let them go all the way to the stop even though I see that the trade is going wrong. I think it's a blend of discipline and hope that causes this. The discipline is to have a stop and ultimately execute it, but the hope leads you to it even though it's clear you should be getting out (hoping that it'll turn in your favor). Hard stops don't really help. Most of us know why we entered a trade and we know when it's going wrong. But we also know when we have to let it play out a bit before exiting. I keep telling myself that I should just exit if it doesn't look good because I can always get back in, and probably at better prices than the original entry. Or, if the situation changes, I can go in a different direction. But then you run the risk of getting whipsawed! Where IS that post about trading being easy?! P.S. - I agree that hard stops are a really good idea if you have to leave an open trade for a period of time.