Stopping Yourself

I read on a bulletin board a traders comment that on his first outing trading the E-Mini S&P 500 he lost on each of his trades. He noted though, that had he had a wider stop each of his trades would have been profitable and that therefore he would be trading with a wider stop in future.

A wider stop on these particular trades may have worked, but this does not mean that a wider stop per se is the answer. In fact, everyday there is the possibility of any given trade going into profit if given enough room, but that does not a wise strategy make. This trader was a seller in a market that subsequently went down; hence he could see that had he given his position a bit more room he would have made a handsome profit. Unless this trader has the ability to always accurately predict the direction of the market he is going to experience days where he is wrong and the market goes against him, in which case his potential for loss with wider stops is greater.

When deciding an appropriate amount to risk on any trade (i.e. size of stop) a trader has to consider more than the potential profit on a particular trade on a particular day. What this trader was saying to himself was 'If I had a 3 point stop instead of a 1 point stop, I could have made 15 points; therefore I will always use a 3 point stop!' Partly what he was saying to himself was 'I was right!' But he wasn't right; in the time frame of his trades and within the risk limit of those trades he was wrong, his timing was off and that is what he needs to work on.

He is also making two assumptions:

1) That having a bigger stop and therefore bigger open losses will not affect his trading composure and performance (how do you feel if you are risking $10?? $100?? $1000?? $10,000?)

2) That he would have held on to his profitable trade until he gets an exit signal (it is easy to assume after the event that we would have got out at the very best moment)

The truth is we are all much weaker than we would like to assume. The biggest challenge to profitable trading is sticking to our own self-imposed loss limits, be they on a per-day or a per-trade basis. What this trader did on this day was stick to his limits, which is highly commendable; he was just having difficulty accepting his results. No one likes losing money and no one like being wrong, but to be successful in trading we have to be accepting of both.

Malcolm Robinson
LIFFE Pit Trader & Electronic Trader
InstinctiveTrader.com

---

Stocks Trading - Advantages and Disadvantages

What is Stocks Trading?Companies throughout the world issue new stock... Read More

An Evaluation of the Devaluation

A Minister of Finance is morally right to lie about... Read More

Disgruntled

The following situation happens quite often to many traders. Look... Read More

Welcome to the World of Currency Trading

Indeed large multinational and individual banks and other major financial... Read More

Advantages of Trading FOREX Over Stocks and Commodities

There are many advantages to Trading FOREX as your main... Read More

Online Forex

Q1: When you consider that the foreign exchange market has... Read More

How To Control Fear And Greed In Trading

There is an old saying that the market is driven... Read More

Factors Influencing a Currency Pair Exchange Rate

IntroductionThe exchange rate refers to the value of the US... Read More

Forex Trading

Foreign exchange market, or better known as FOREX, is the... Read More

Trade Entry Techniques

Most traders tend to concentrate on pinpointing the perfect entry... Read More

Crisis of Confidence in the EU

The European Union (EU) constitution was dealt a double blow,... Read More

A Look at Forex Market Makers

The investor in the currency market takes for granted that... Read More

How Currencies are Traded in the FOREX Market

Currencies are traded in dollar amounts called "lots". At 100:1... Read More

Momentum Trading: A Practical Day Trading Strategy to Get Profits from Hot Stocks

Momentum day trading can be extremely profitable when done correctly...Day... Read More

Trade Exit - How To Cut Losses And Let Profits Run

Cut your losses short and let your profits run. This... Read More

Forex Signal, Forex Signals Advice

There are lot's of Forex signals providers out there. New... Read More

A Fools Game

I received an email this week with a question (below)... Read More

Internet and Computer Systems in the FOREX Business

With every passing year the interest in electronic trading is... Read More

Forex Options Market Overview

The forex options market started as an over-the-counter (OTC) financial... Read More

Assessing the Opportunities Presented by the New Iraqi Currency

Could it be possible that you are staring right into... Read More

Day Trading the Index Futures - How to Judge Good Entries

QUESTION: If the SP futures fall through support and go... Read More

Your Mother Could Make Money In Forex Trading

The question would be not whether she could but rather... Read More

Forex Scams: How to Spot Them A Mile Away

In recent years, investors have witnessed increased number of investment... Read More

A Beginner?s Guide to FOREX

FOREX is the abbreviation for the Foreign Exchange market. FOREX... Read More

5 Questions You Need To Have Answered Before You Back-Test Your Forex System

As 90-95% of new forex traders lose money within the... Read More

Risk and Stock Trading Fees: The Two Barriers To Overcome If You Want A Successful Trading Career.

You know the old joke:"How do you make a million... Read More

Adaptation to the Realities of the Market

Do you think adaptation to the realities of the market... Read More

Writing A Trading Plan

All professional traders have a trading plan. Trading futures is... Read More

Stopping Yourself

I read on a bulletin board a traders comment that... Read More

Forex Made Easy for Everyone

Forex made easy is as simple as you would want... Read More

Hedging Foreign Exchange Risks

The exchange rate of the Macedonian Denar against the major... Read More

What are Your Options Regarding Forex Options Brokers?

Forex option brokers can generally be divided into two separate... Read More

Forex Broker Involvement Optional

To trade on the forex market, the largest financial market... Read More