I'm sure everyone has been through this before. You get into a position, and then it moves against you but you fail to execute your stop, thinking to give it a day or two more to wait for a bounce. Few days later, the price has eroded even more seriously and you are now in a difficult position of deciding whether to sell out at what could likely be the low price of the week in order to control the damage, or to tough it out for while more waiting for a bounce to the price. What would most of you do in this situation, and what has been your experience? I've observed that after failing to execute an early stop, often one then ends up selling at the lowest price of the day or week. But sometimes when we tough it out, then we really get into big trouble after that, and a minor loss can become life threatening.
Think like a boxer - if I'm down a certain percentage of the portfolio, I consider myself to have been KO'ed and just get the heck out of the position. Imagine a boxer who just got knocked out and despite his body telling him otherwise, he keeps getting up only to get pounded again and again. Is that a smart way to have a longevity in your career? Or should he pack up and recover to fight another day? When I'm swing trading and don't use hard stops, my threshold is 2.5% of the portfolio. Before I reach that point, I'll scale in and out, hedge temporarily, etc. basically use everything in my arsenal in order to win, but once that point is reached, I consider myself KO'ed and I'm out, period.
someone suggested to double up once u feel the heat is too much too bear...am not sure if this works or not and i wouldn't recommend it for small acct holders and inexperience traders...maybe it's worth a try if u really got to that point BUT..u need to place a stop on the whole position very close to your last entry and no butzz, if hit get out.
The problem with the double down approach is if it works!! Once you have tasted crack you will always find a way back!! What I mean by this analogy is if you make money by making a gamble your trading system or plan will gradually or quickly change from something rational to a roll of the dice.
Usually, when I miss my stop, I curse loudly and roundly and just pay an offer or hit a bid. I then don't trade any new positions for a few days because I am obviously not trading smart. The exceptions are when there is a strong gap against me. If I'm suddenly down 20-30% and there was no reason for the move, I (quickly) try to find out WHY. If there is a good reason WHY that isn't overly hyped in the media/net, I'll get out and possibly reverse. If there isn't a clear reason why, and I'm down significantly enough that I'm already hurt much worse than I would normally be (30-40% loss vs 6-10% standard stop), I may wait for bargain hunters or a dead cat bounce to close out at a less horrendous loss (20% or so). That doesn't always work out, however. Usually, on any one position, a 50% loss is the maximum I will stomach before I simply must get out. That is a rare event, however. Good money management dictates better practices.
The split second you fail to execute your stop in swing trading you become an investor on that particular issue. That ain't all bad, all the time, just know it when you do it. The split second one fails to execute on stop when day trading you just became a gambler. That too ain't all bad, all the time. Again, just be honest with yourself as to what type of situation you're in.
Take a picture of the chart and put it on your wall so that you have to look at it EVERY single day !!!! Make the pain as real as possible so that you never do that again.