Taking a loss even when you know you should is one of the hardest mental blocks to get over. Its the difference between a amateur and a pro. If you can't do it, the odds are long you will never make it as a trader. When I was first learning, this was my biggest mental block and cause for the boom and bust I always encountered. I was able to get it under control before a major disaster, but it is the one thing thats kept me in the game. I had a mentor once tell me if you can't get by that deer in the headlights, mind freeze, then at least sell half the position when it reaches your pre-defined limit... while at least working toward a goal of exiting entirely when you know you should. This guy was a train wreck waiting to happen... hopefully he learns from it.
OK, I'll ignore the sarcasm and respond. If I get shot in the leg, I'm going to put on a tourniquet to stop the bleeding. I'll still be wounded but at least maybe I'll survive. I don't just cut my leg off. It's a way to stop the bleeding, nothing more. Buy some time. If the market turns back in your favor (think Tuesdays action) you can take off the hedge and recoup some losses. If it doesn't, then go flat and take your loss. It's still better than doing nothing and watching your open P&L go south. I think you misunderstood my earlier post - I did not suggest this as a way to make money. It's just damage control. I also agree that a trader should never let themselves get shot in the first place. Always have a plan, stops in place etc. However shit does happen and IF I somehow find myself on the wrong side of the market in a bad way for some reason (fear, foolishness, mistake, etc.) then I'm going to do what I can to trade my out of a bad situation. Btw - Here's an example of shit happening - I was once holding an open long position overnight and thought I put my stop loss in place, but was careless (stupid) and instead of putting in a sell stop order to flatten, I had a buy order in by mistake. So instead of being stopped out, I ended up with a long position double the size and in the red in a big way. These things do happen and any trader I know of has done similar things. The difference is how we deal with the adversity when our plans go awry. Shouting at my computer and cursing the markets gets me nowhere. I prefer action to "bending over and taking it", but that's just me and my humble opinion - Others may differ.
how do you know,if market turns back? ok, SP is up +1% for example. now what? there no guarantee , that it's going to go up even +0.1% from here. you exit from your short position and market start falling apart right after it..what you going to do now? and again-what difference does it make vs simple stop? for me, locking the loss doesn't make any sense..
I laughed. <object width="425" height="373"><param name="movie" value="http://www.youtube.com/v/Mk3hmifWLhE&rel=1&border=1"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/Mk3hmifWLhE&rel=1&border=1" type="application/x-shockwave-flash" wmode="transparent" width="425" height="373"></embed></object>
He hasn't posted since Jan 16. :eek: He was still LONG 2440 @ 171.80. If he's still hanging on, he's looking at -$92,890.80 Ouch. Let's hope he got out earlier!
It is better because in a typical overnight session, the spread on ten contracts of russell 2k is probably 1.5-2 points wide. Now, on this particular session, I don't recall exactly, but the spread on the 10 russell contracts was probably more like 3 points wide. meaning for him to sell out his contracts, he likely would have lost an additional $1500 over and above fair liquidation value. Now, the spread on 10 ES contracts at this point was probably its typical .25 or .5 point, meaning the slippage on hedging here is probably about 2 or 300 dollars.
He posted on ET as John99 He had the tendency then as you can see in his journal http://www.elitetrader.com/vb/showthread.php?s=&threadid=77649&perpage=40&pagenumber=5 John I hope you are doing OK buddy. Drop me a PM anytime.