Trading to win using the Secret Code of the Illuminati

Stop Using Stop Losses

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Stop Losses

Stop Losses

Stop losses aren’t for everyone. Some very sophisticated traders don’t use them. They use a form of hedging, and/or have a mental blueprint that allows them to have a catastrophic stop when their premise is broken.

I don’t advocate that methodology for beginners. It takes time to understand how markets work, and in the live arena, one bad day of undisciplined trading with a brain freeze and your account is in jeopardy if it is a small one.

This concept is explained in detail in our Emini wizard system, and it stems from Jesse Livermore’s “bucket shop” theory.

A trader today suggested that he bought at 844 (pullback) and wanted to know if he could average in at the low 830’s, in expectation of a bounce to 850. The market was 832 at the time.

How do you intelligently answer this question?

Now he could have bought the gap fill, and bounce and get out whole, but putting that kind of pressure on ourselves does long term damage to our psyche, confidence, and trading account.

The outlier is the one that gets you, the one that keeps going against you.

If you scale in a few places, that is very effective in ranges. But a reversal like we had to today chops you up and spits you out on the heap of washed out traders who didn’t know where the line in the sand was. Mine was 49.75 stop (honest) and target 37.25 as support. If 37 breaks, then I expect gap fill and likely test 828.

Limiting your losses is the key in this business.

If you stop using stop losses, then you need to have the discipline to give up a size-able chunk to protect yourself. You’ll win some and lose some.

Easier to just never put yourself in that position, but that’s just my conservative nature. If the market is extremely overbought or oversold, and we are near a “time reversal zone”, then I allow myself the luxury of a ONE time scale in at the backup support or resistance. If that busts, I put my tail between my legs, admit I am wrong, and donate to the Boyz retirement fund.

Think of it as Russian Roulette’s; one bad spin and we are out of here. Traders who average in must be equipped mentally and financially to weather the draw down.

Fast up is sometimes fast down because no support has been built up along the way.

Today was one of those days they jammed both sides.

 

Stop Using Stop Losses

Stop Using Stop Losses


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