Sticking to stop losses can be tough, especially for newer traders. This post offers some tips. Read on.
First Things First:
When you are relatively new to trading or you are just struggling to stick to your stops, you should be risking the least amount of your trading capital per trade as possible, or you should be trading on demo.
The other thing is that you should always place a stop the moment you enter a trade. Some experienced / professional traders can trade without a stop, but as a newbie you shouldn’t even think about it. I understand that when you are trading very short timeframes (like seconds), this might not be possible. But if its possible, place your stop loss the moment you enter a trade.
With all of the above being said, I write this post assuming you already have a strategy with a proven edge.
Shoot First, Asking Questions Later?
Shoot First:
- This simply means, once your stop is set you let your broker do the work, removing the human factor.
- You know that if the stop is hit, you will lose very little or nothing if you’re on demo, which reduces emotions.
- Stops automatically take care of the downside, now you just need to manage the upside.
- You might want to move your stop before you are stopped out. Don’t. Take the loss. Taking losses is never easy, but it gets better over time.
- Always remind yourself that losses are a part of the game. Always take the stop. Record all your trades. Gather enough data to review at a later stage.
Ask Questions Later:
- Evaluating your trades (stops in this case) at a later stage is helpful since you will be more objective, i.e. you are not caught in the moment of a trade – less emotions.
- Now you can ask simple questions like: Was my stop too tight? Was my stop too wide? Should I consider using a time stop (closing a trade that takes too long to play out)?
- Other questions to consider are: Did I make any mistakes (how can I correct them)? How did I feel when my stops were hit ? What’s bothering me more, the monetary loss or just losing in general?
- With enough time you will come to realize that taking losses is part of the game. You can have losses and still make money.
- You’ll get proof that your initial stop is the best stop. Many times moving a stop will work, but every now and then price can and will go a lot further against you.
- Now you can decide if you need to make an adjustment on your stop placement, or if you need more data.
Note: Its easier to make a decision with point 2; with point 3 will have you digging a little deeper.
Finally:
I said it before and I’ll say it again: You’re chances of trading success gets better with a long – term commitment and more realistic expectations. Once you master top losses, you can move to the next stage and continue to refine your skills. That’s how you get better.
Thanks so much for reading. Best of luck with your trading.
Thanks and Regards,
Trading SOS SOS
