Monday, March 20, 2006

Stop Management

2 trades and I got it twice on the chin. Not only were both of my long trades stopped within 3 ticks of the low, no, to make matters worse, to give me the ultimate knock-out: Both trades came back to my entry, within 20 minutes. And I’m not talking about a 5 tick stop, no I’m talking about 20 ticks in the euro respectively 30 ticks in the IBEX35. 2 V moves where I get stopped-out within ticks to the bottom.

I really had no emotional problem with my stops, they were far away when I opened the trades, sure, but I have decided, that using this kind of stop is better for my trading than small stops. That’s fine, that’s the way I trade. And I thought the stops were logical, meaning they made sense. And I already argued with Mr. Market, why it happened today..TWICE.

BUT writing this, I can see, I (again) violated one of my own Stop placement rules. The Stops were not logical, they did not make sense, because they were placed right above Support. I did not consider this, when opening the trades, because I did not really see the Stop getting hit. And when it became a possibility I was unwilling to increase the risk, because moving the Stop beyond Support would have meant moving the Stop against me. Something I had done too often in the past.

So looking back, thinking about my trades I can see, that the 2 V moves aren’t really so unusual at all. Price broke one support level only to be held by the next support level further down and then moving up again. Nothing unusual, actually something absolutly ordinary.

Had I not written this today, the shadow these two trades would throw on my further trading would be a lot longer! Why? Because initially the feeling was, Shit, I hate stops, everytime you get stopped, you see the trade come back, totally forgetting all the times, when prices did not come back, when it went just further and further against me.

But now. Now I see I made 2 dumb decisions about my Stop placement. Well, I can live with that. Better someone tells me and I can do something about it, than not knowing at all, that in reality it’s not the market being mean, it’s just myself being dumb. I had to pay for this lesson, That’s the way trading is, that’s the way we get our education. In trading the tuition is not fixed and you don’t know when an installment becomes due. But you will have to pay from time to time.

It’s for us to think about it, to recognise for what we had to pay. Often there is a lesson to be found and if we see it, if we understand it, well then the payment was one well invested.

Without writing this article I would have not seen todays message, instead I would have taken again (for the umpteens time) the wrong, well trotten path to No Stop Trading.

I’m sure glad I have this ability to express myself, to write without knowing what will be the result when the writing is finished. And I can only suggest to you out there:

Try it. Start today after the market. Open a blog and try writing about your trading, what you felt, why you did what you did, why you think something worked or did not work. It might feel difficult in the beginning, in the first few weeks, but I can guarantee you it becomes easier, it will feel like second nature, and maybe sometime in the future you will be able to let your subcontious mind do the writing, having found a way to let it speak to you, so you are able to see, what it is, that really influences you. Only then you will be able to discuss some of these thoughts with yourself.

I did that, when I started writing the 3rd paragraph above. First I felt cheated by the market, was angry, frustrated, but then I could show myself that a Stop in the Euro at 1.2155 (FX) (futures 1.2227) isn’t something very intelligent, when you can expect the Euro to test the 1.2150 level after breaking the support at 1.2175. Same for a Stop in the IBEX35 at 11901. 11895–90 yes that’s ok, 1.2145–37 in the Euro, fine as well, but ..55 or ..01 on longs, that’s just dumb….and recognising this is well worth the money I paid today.