Down with Mental Stops

[calamitychris 10]

I thought I would post this just to make you glad that you put in your hard stops today. I just gave back two weeks of profits ($2700) today. Luckily I am still in the black and this loss is not debilitating but it was a good reminder to me that mental stops are BS.

 

My normal stop is 5 points but I thought that I would loosen the slack today given the fact that the S&P is teatering on major support. I had to leave my computer without putting in a stop order and when I returned I was down $1500. I decided to wait until the next major support zone but once that was compromised I finally bit the bullet at a $2700 loss.

:no:

I have only been trading for about 6 months, so if any of you veterans out there can give me some insight on stops, I would greatly appreciate it.

 

Happy Trading!

[torero 10]

You picked the right spot to set your stop, below support (assuming you were long above it). But you should put the stop as soon as you make your entry. You can always cancel and move it if you think it's justified. As MrPaul mentioned, some freaky incident like internet connectivity or power outage in one minute can be a hazard to your account. It's a lesson easy to solve but hard to execute until a big loss forces you to change your habit.

 

As for where to place stops, that depends on your trading strategy and research. It's difficult to do but once you found a consistent spot, taking stops if a lifesaver. I usually place stop the low of 2 bars ago or the last pivot low for long. There are tons of books on explaining on how to place stops. But it must match your strategy and trading style.

[Soultrader 12]

I have hard stops hardwired in my head at all times. Its come to a point where I dont have to actually place a stop but I am automatically cutting losses super quick. Get into the habit of placing hard stops. Through experience you will be able to be more lenient with stop placement but until you are confident in yourself about taking losses, PUT THAT STOP IN! If it takes you out, great. It just saved your butt from more losses. If it stops you out and moves in your favor, work on entry precision and adjust stop placements. If your entries are well crafted, stops can be tight. If you are depended on confirmation of price action, you are going to take some heat. Determine how much heat you usually take and adjust your stops accordingly. Also, never walk away from an intraday open position. That was your number one mistake.

[Nick1984 10]

Never walking away from an intra day position is good advice. My first hard lesson which taught me to always have a stop in at all times happened when I used a mental stop. I was long in a position and was going to use a mental stop. I'd drunk around 2 litres of water over the past hour so I was really busitng to go to the loo so I got up and had a marathon slash. By the time I came back to my screen my +8 position was suddenly -11! OMG. Stopped out and then some!

 

Get in the habit of using hard stops!

[GCB 10]

I always use OSO (order sends order) for buys and sell. When my trade goes in my stop and target(s) go with it. Theorectically it's impossible for my stop not to go in if my order is filled. This gives me alot of peace and mind and helps discipline as well. I can always customize the stop and target after it is in place.

[Guest TRex]

I trade with a hard 5 tick stop; however, I have been more liberal in the past few weeks to account for the increase in volitilty.

 

Perhaps just as important as placing (or knowing) your stops in advance is the awareness of the next entry. Too many times, traders get stopped and then freeze or curse or lallygag. Every trade should be made with the knowledge of where the next entry is should you get stopped out, and this may have some impact on your decision to perhaps forgo the stop and take the next entry thereby lowering your cost basis. This is not averaging down! Instead, it is proper trade management and plan execution.

[brownsfan019 17]

I trade with a hard 5 tick stop; however, I have been more liberal in the past few weeks to account for the increase in volitilty.

 

Perhaps just as important as placing (or knowing) your stops in advance is the awareness of the next entry. Too many times, traders get stopped and then freeze or curse or lallygag. Every trade should be made with the knowledge of where the next entry is should you get stopped out, and this may have some impact on your decision to perhaps forgo the stop and take the next entry thereby lowering your cost basis. This is not averaging down! Instead, it is proper trade management and plan execution.

 

rex - you trade with a hard stop, but also forgo the stop? That seems more like a 'soft' stop.

[Guest TRex]

rex - you trade with a hard stop, but also forgo the stop? That seems more like a 'soft' stop.

I thought I was very clear.

 

I trade with a hard stop and depending on the next entry, I may or may not take that stop. For example, if there is another entry exactly at the stopout point--let's say a very high probability setup--I will forgo the stop and and double my position by taking the next trade. My trading plan dictates whether or not I do that AND I'm always aware of the next couple of entries before I take any trade. This is known as trade management.

 

I hope that eliminates your confusion on the matter.

[brownsfan019 17]

I thought I was very clear.

 

I trade with a hard stop and depending on the next entry, I may or may not take that stop. For example, if there is another entry exactly at the stopout point--let's say a very high probability setup--I will forgo the stop and and double my position by taking the next trade. My trading plan dictates whether or not I do that AND I'm always aware of the next couple of entries before I take any trade. This is known as trade management.

 

I hope that eliminates your confusion on the matter.

 

So what you are saying is that you will have a hard stop on your dom, assuming that's a market order, and if another signal is possibly forming, you'll pull that 'hard' stop in case another signal appears? What I am saying is that if your hard stop is at 1500 and price is approaching 1500, it could very well tip 1500 before another signal would appear.

 

Point being that calling something a 'hard' stop when it can be moved or overridden is not a hard stop. That's more of a fluffy, soft stop.

[Guest TRex]

So what you are saying is that you will have a hard stop on your dom, assuming that's a market order, and if another signal is possibly forming, you'll pull that 'hard' stop in case another signal appears? What I am saying is that if your hard stop is at 1500 and price is approaching 1500, it could very well tip 1500 before another signal would appear.

 

Point being that calling something a 'hard' stop when it can be moved or overridden is not a hard stop. That's more of a fluffy, soft stop.

 

That's not what I'm saying at all. In the instance you described, there is no hard stop on the DOM. However, there is an order at the next entry price.

[brownsfan019 17]

That's not what I'm saying at all. In the instance you described, there is no hard stop on the DOM. However, there is an order at the next entry price.

 

OK, so we are back to the discussion of using a hard stop or not. Obviously, by this response, you do not use hard stops. Hard stops mean just that - they are hard and do not change. That's not to say it's wrong, but I was having a hard time understanding how a trader could say 'I use a hard stop' followed up with 'but sometimes that hard stop is moved or not even on the DOM'.

 

That's not a hard stop.

[Guest TRex]

Correct, in this instance, I don't use a hard stop, which is consistent with my first post that you addressed.

 

Aside from this particular situation, I use hard stops. I hope that clears the matter up for you.

[Reaver 10]

Correct, in this instance, I don't use a hard stop, which is consistent with my first post that you addressed.

 

Aside from this particular situation, I use hard stops. I hope that clears the matter up for you.

 

Yes, very much so. I think we are pretty clear on how you trade.