Trading to win using the Secret Code of the Illuminati

Stop Losses
Stop Losses

Stop Losses

Stops are to be used for one purpose.

To stop your losses.

Get over your ego, so you can live to fight another day.

That’s all that needs to be said.

Thanks to Dennis Gartman for these great rules.

This was quite a day.

Smug traders with no respect for the market suffered their rightful punishment.

Anyone who tells you this market is easy is either lucky, a liar, or exceptionally talented.

I do not consider myself any of the above.

Here is a conversation I had with a fellow trader (FT):

FT: Yikes! What do I do now?

E: What’s the problem?

FT: I am underwater, a lot.

E: Oh. Once the horse is out of the barn, tough to close the door and catch him.

FT: Great. Just what I need, a lesson.

E: This is a lesson I suggested for you the other day. Did you read it?

FT: No, I have been busy.

E: Did you take the early morning long?

FT: No, I was chicken.

E: Well, did you take the resistance trade I called at the gap fill?

FT: No, I thought it was going long then.

E: Do you remember I called support near the day low?

F: Yes.

E: Remember I said be careful shorting too low?

F: Yes. I took the resistance where you said it should be.

E: And?

FT: It didn’t work.

E: Right. We never know who will win the tug of war. That’s what our stops are for when we guess wrong. Support held, then the retracement turned into a reversal. After all the profits we made, a stop out is the least of our concerns.

FT: AAAARRRGGGGHHHH! I can’t stand it.

E: Three thoughts, FT:

  • Have a maximum stop that you will honor, no questions asked. No one trade should ever make you or break you. Just get out, even if you screwed up. It should be a money stop, a maximum pain point. It will probably be just before the market turns around in your direction as luck will have it. So be it.
  • Learn from it, live to fight another day. Study the charts and find out where your judgment was wrong. Most times it is improperly evaluating risk vs reward, the fundamentals like first of month bias, or underestimating the PPT.
  • Promise yourself (again) to always honor your stops.

FT: Thanks E. You’re always right.

E: Nope, Just right about stops though.

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