The market have so many ways of messing with us. Here’s one: you can be right on the final outcome / direction of a trade, but still be wrong. How can this be? Interested? Please read on.
Right, but Wrong?
Imagine taking a long trade, setting your stop loss and price target as per your trading strategy. Then your stop loss takes you out, just to find out later that price did a round turn and hit your price target.
In trading, it’s an incredibly frustrating, but very common thing to be right in your analysis and still get stopped out for a loss.
This is often where the market starts playing with your mind.
Mind Games:
Immediately after something like this happens, you start thinking: “what if my stop was a little wider?” or “the market is out to get me”.
That’s exactly the point where doubt creeps in. You start doubting yourself and doubting your strategy. Before you know it, you make changes to your strategy (changing stop loss parameters) or you start looking for a completely new strategy.
Of course, these are the types of things that contribute to our inconsistency in trading in a big way.
What is at fault here? Is it your stop loss placement? Is it the market?
My Perspective:
Is it Your Stop Loss?
No. If you have a back tested trading strategy with a proven edge, clear rules and you’ve executed your trade to a T, you can’t blame stop loss placement.
The only time when you should consider changing your stop loss rules is when you have enough evidence to justify it. This should become evident through journaling. You’ll need to prove that your new way of placing stops works through further back testing.
Is it the Market?
No. It is never the market. Never blame the market. Period.
Never try to second guess the market or think you are more clever than the market. The market will do things, some you will be able to explain and others you won’t – try to except this. When you are trading, you are dealing with the uncertain – the best way to navigate uncertainty is by following your rules.
Finally:
When you’re trading, you’ll inevitably experience a moment when your stop loss is hit just before the market moves toward your target. This is not uncommon, whether you use tight or wide stops. It’s best to define this risk beforehand and accept it accordingly.
Thank you for reading. I trust you found this post helpful. All the best with your trading.
Thanks and Regards,
Trading SOS SOS
