When I started trading few years ago I was fresh from reading many beginner level trading books. In all those books an lessons the main advice was take your stops. So I decided I will not be like majority and loose by not having stops. So I started trading, taking stops. Many stops. It was typically it looked like those stops will kill me. That market so many times just take out my stop and reverse in direction of my trade.
The problem also was that I took my profits too soon, so profits was not near covering all those loses.
So first I started with opening another trade in the same moment that I took stop loss. Beginning of revenge trading. I still took my stops like I promised to myself. But soon it looked stupid. I took stop than open another trade on that level and put another stop. So it was better to just move my stop, make it bigger.
It worked sometimes and I got hooked. It looked like I can go without stops. Just move them enough and market will reverse. If you open another position on new low level break even point will come half way down. It's seductive. So averaging was born.
Now it's how I trade. Averaging, moving stops, revenge trading.
It's not trading.
I think sooner or later full circle will be made. I will again use stops no matter what like in the beginning. Difference will be that I now have first hand experience why stops have to be used.
But leaving bad habits is like leaving some drug addiction. You are leaving behind all those saved situations, when averaging, moving stops saved position from loss.
With deep inside knowledge that my trading didn't evolved to profitable, and that using stops without exception will not give me guarantee that I won't just lose again like I lose now it's hard to change.
But I think, that only by doing that I have a chance to learn to become profitable. Without stops I have no chance.
The problem is to accept the fact that I don't have guarantee that I will learn to trade profitably. Start trading, use stops and accept all loses and slow downtrend in account funds because you are learning to trade profitably.
It's hard to accept that I'm not some good profitable trader that can make 10% a month when it looks so easy. It looks easy in hindsight but reality is far from it. So it's all in accepting the reality. As long as I fool myself with some nice picture in my mind about me as a profitable trader right now I'm disconnected from reality and I can't move.
Will I start trading with stops and accept all loses that stops will give me maybe even bigger than averaging down gives me now. Or I do it latter, or never. My belief is that it's my next step that I got to take in trading.
Tuesday, July 10, 2007
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5 comments:
I always have mental stops. I find that if you place actual stops the market is drawn in that direction. With stocks, the specialist or crafty hedge funds will hit those stops. A lot of people who buy then place stop orders to sell is essentially flooding the market with sell orders. These people who are not strong in their conviction of the direction of the market cause chop. Never let any one know what your limits are and let the tale of the tape be the deciding factor to buy or sell.
Thanks on your advice.
Great post, FX.
As for always having your stops hit, believe me, I understand. Perhaps you need to focus on finding better entry points. Keep your stops, if you have correct entries they shouldn't get hit that much.
-DT
p.s. enjoy your vacation
dinosaur trader,
I agree with keeping your stops, just not to have them electronically set. Money management is also key to survival in the game and so is good risk management so you can have some breathing room. I only trade equities so I am sure that the FX market has it's own trading character.
kc
Forex is so big that electronic or mental stops don't mean much, but it's true that majority put stops at the same place so it's easy to make stop runs.
dc
Thanks, I will enjoy it :))
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