Stops, Trading Gods and Bad Trades

For some reason, traders just love stops. I mean they flat out beg for them. I hate them myself because when I put in a stop, I usually get it. I told the market where I was willing to trade again. In the last 13 years as a forex trader, I have seen my take profit targets get hit overnight but not get filled due to market maker spreads. They just would not fill me. I do not care what broker (I have been through dozens of brokers); it’s always the same. However, if those were a stop loss orders instead, then for sure I would have been filled.

How many times do you see yourself get stopped out only to have the market reverse soon after and go right back in your direction? How many times have you been upset about this? I would guess a few hundreds of times in my case. So now I think a bit differently. I look to add in where I think others would be stopping out. Sometimes this works and sometimes the market blows through like butter and I wake up and see two small positions on and underwater. It happens.

As far as stops go, every trader should have a plan, right? Or at least a mental stop loss or a place, price or move that you say… oh…. this is not going well; a place where the trade is invalidated. There is nothing wrong with a stop loss. Some accuse me of never having a stop loss. That is not true. I use them about 5% of the time but I have consistently preached and taught 1,000 times and until I am blue in the face that…

… stops are personal. What do I mean by this? Some traders want a pip count, like if price drops 50 pips I’m wrong and I’m out. That is fine. Some want a candle based stop; this buy candle here is 27 pips wide I will go long and put a -30 pip stop under that buy candle. That is fine. Others want it $ based; I do not wish to lose more than $100 on a trade. That is fine. Count your cost then select your size and put it on accordingly. All of the above is fine. I have said this thousands of times to all the traders that ever passed through my doors.

I get all these questions; what is our stop and our target? How long will it take to get there? Do you think we will hit it today? My answer is always the same; “What do I look like? A trading God or a soothsayer?” Sorry but I believe, like Mark Douglas said: “We know nothing for sure and we don’t have to in order to make money.” All I know is that I have a plan. Let me shed some light here.

It would be nice if you could jump into the mass collective market mind and know every trader’s, every bank trader’s, every MM’s, every investor’s and all hedge funds’ positions, stop, intentions and targets… but you can’t! Neither can I. I can find target areas pretty easily but the ETA (estimated time of arrival)? I do not have a clue. Not one tiny freaking clue.

I see targets that I think will take 2-3 days to make it to and then, all of a sudden, something happens and I am out for hundreds of pips in just mere hours. I see other targets sometimes and think; “Oh, we should go there in a few hours”, and then it stiffs me and takes 5 days. There really is no ETA.  Sorry. I wish it was so but that is newbie stuff. I’m not a trading God and I never met one.

Bad trades are absolutely inevitable. There is no way on Earth that you can avoid it.  Do you think you can avoid them? You’re insane. So many traders think a trade guru should be a trading God and have 90-95 % accuracy. That is just laughable!

I had a guy join me once years ago. I still remember him. I called a long on GBPCHF. He must have dumped his entire account on it. He begged for a stop loss. I told him that if he needed one that badly, to place it under that bar there.  Bam! He was stopped out and said he had a “massive loss”. He cursed me to high heaven, went on Twitter and bitched me out to the world. 24 hours later we saw that GBPCHF had only gone a lousy 25-30 pips lower, bottomed out and took off like a bat out of hell. It ran 500 pips in 3-4 days. It was amazing.

You are going to place 1,000 trades a month and have 10-30 % of them go bad. That is 100 to 300 bad trades out of 700 good ones. Are you OK with this? If not, you need another career.

Now, what do you do with the bad trades? If you chose to stop out, you can.  It’s fine. It’s not a problem but it will, of course, cut into your 70%+ winners and it will eat up about half of your profits. So, if you are OK making $700 and losing $350 and ending with $350 (just pulling an example here), then that is what you have for your day; 2 wins and a loss.

However, if you could put just a wee bit more effort and patience into it, you can probably fix those bad trades over time and force them to pay out even against their will. It can be done. I have perfected this to a science in the last few years. I do it all the time. Constantly.

Thanks for reading. Think it over and I’ll see you in the next article!