I went short USDCAD sometime during February 2020 for various reasons (the specific dates and reasons are not important for this post) and was stopped out towards the end of that same month for a small loss.
As with most trades chances are that there will be some emotion involved whether it is when you enter the trade, while the trade is active, when you take profit or when you take a loss. In my case I took a small loss and sure, I did feel a little annoyed which is normal for me. After that I wrote up my trade and copied (and pasted) the charts for later review.
Yes I did feel annoyed at getting stopped out as I said above, but then in early March 2020 that very same USDCAD pair gapped up pretty big which would have been against my short had my stop not taken me out of the trade a week or so before. Below is the USDCAD daily chart:
You will see in the chart above that resistance has been tested a couple of times and there was opportunity close too or at resistance for potential trades, and towards the end of the chart you can see the gap. I will tell you now that it can be irritating when a stop loss is hit because in many instances it means that you got out of a trade for a loss (not so when you trail a stop into profit of course) meaning you have lost money and that could cause some people to do some silly things(trading related thing). Not often do I feel that I should be grateful for something like stop losses, but in a case like this I was, and I feel it is good to get reminders like this from time to time. This did not just happen in the USDCAD; go back and look at some other forex charts, stock market indices, bonds and oil from about the beginning of March 2020 and you will see that there were some big moves there that I can only describe as crazy and scary moves. Now if you were on the wrong side in one of those market moves, stops could’ve helped you avoid doing some real damage to your trading account.
In their book “Technical Analysis of Stock Trends” which was written Robert D. Edwards and John Magee the following was written in the chapter about stop orders:
“First let us look at the protective stop order. At best it is not a happy subject. Stop orders of this type are like fire extinguishers. The occasions when they are put into operation are not times for rejoicing. Stop orders are used for emergency rescue when things get so bad that there seems no reasonable hope for the situation.”
I really like how they describe stop losses as fire extinguishers and it is true, the time we have to use it is definitely not a time for rejoicing, but time and time again you will see charts like the one above and that’s times when I am truly grateful for stop losses. They can be very irritating, like when price is going in your direction and hitting your price target right after you have been stopped out (this happens a lot and to traders of all types and at all stages on of their trading journeys – so don’t feel like you are alone), but they are a must in my opinion.
You will come across many charts as the one above if you stick to trading long enough and also if you are the kind of trader that studies the history of different price charts; my advice is to remember them somehow for / as reminders of what can happen to a trade you are in at any time. Note them down somehow, copy and paste them somewhere or print them and look at them on a regular basis for reminders. Take your loss where you original stop loss was set, never move your stop loss further away (in opposite direction of price target) from your initial stop order so as not to get stopped out. Take the hit (hopefully you risk little per trade!!) and just be grateful that you did because you’ve seen what can happen (or have experienced it yourself) and that you know that there are many other traders who struggle with it; that your trading account is still intact and that you have one more trade that you can learn and improve from; and that you survived to trade another day.
Regards,
Trading SOS SOS