‘Stop in the name of love, before you break my heart’
‘Don’t stop believin, hold on to that feeling’
‘You’d better stop before you go and break my heart’
Can you spot the common theme? That’s right, they’re all lyrics from famous songs. But there’s something more. Can you see it? They all have one word in common. A word that I know is so important in trading, yet for some reason I didn’t act on this knowledge, and it ended up costing me dearly. Every time I think about this week it genuinely hurts, not because it was a loser, but because I failed in one simple thing. I let myself down and in doing so, I cost myself a great end to the week and what would’ve seen me back to trading at £1 per point on Monday morning. Also, this would’ve been a very different blog post to the one I am about to write.
Now don’t get me wrong I understand by anyone’s standards it was not a bad week for sure (-£8.60 = 17 points), but it was still a losing week. So now as I conduct my weekend reflection of the week gone by, why was it a losing week?
Remember the clues at the beginning….
Got it? That’s right. I didn’t use my stops. Basically, I failed miserably in the simple application of a fundamental part of trading. So fundamental in fact I believe that it should be the first thing you learn about. The use…of…stops. More importantly, the planning and execution of said stops, at relevant and considered price levels. But no, not me. Nope. I opened a couple of trades, didn’t do any analysis on where I would/ should place a stop, panicked when the market moved against me knowing I didn’t have a stop set, and then subsequently snap closed my positions. Okay so it isn’t that bad you might think, after all the market was moving against you. You didn’t stubbornly hold what was looking like a losing trade. Sure, you didn’t give it time to breathe, but it’s not all that bad. Right? Wrong. It is bad on several levels.
Firstly, it shows a lack of discipline which is another fundamental part of trading, and trading well. Discipline leads to consistency, which leads to success. Secondly, it affects your mindset as you know you didn’t do the right thing so it becomes easy to get down on yourself, and then trade even worse. This could result in you becoming caught in a vicious spin cycle of lose/ get annoyed/ lose/ get annoyed/ lose etc etc…Thirdly, it shows a lack of preparation and planning and as the saying goes -
“Failing to prepare is preparing to fail.” - Benjamin Franklin
Okay so I am now aware of all of this and come tomorrow the words will be echoing around in my head, and I will NOT enter a trade without planning and setting a stop. Sorted. That was easy. However, sadly, that is not the part that causes me pain. You see on those trades I panic closed, as the market moved against me, I closed very close to where it then began to turn back into my favour. And when I say very close, I mean, VERY CLOSE.
I manually closed my short trade in the Dax at what turned out to be 13215.2
The high of this candle went to 13215.25, and then after it closed the market moved immediately down and I lost 20+ points (it moved much further down but I know I would’ve closed at around 20 as I am only scalping). Had I planned my stop it would’ve been just above previous resistance at 13219. So, I lost out by .05 of a point. .05!
It doesn’t end there either. I took another trade, this time long at 13144.2 and closed it out as it was moving against me at 13126. This candles low peaked at 13124.75. Had I stuck to my strategy and placed a stop, it would’ve been at 13123 even. The market then made a nice steady climb, and I would’ve in all honesty probably taken 30 points although the first pullback went on to 45.
So, for not placing stops a total of 1.8 points cost me an effective but unrealised 65 points. Not only that but the negative impact it had psychologically also cost me points. I didn’t revenge trade, which is the only silver lining in this supercell of shitty cloud (it’s not my natural default as I’ve said before for which I am very grateful!), but had I taken those trades I would’ve then continued trading until I had to go to work, and my strategy generated several additional trades, and I could’ve realistically had my first 100+ point session. Instead, I shut the laptop, turned the monitor off and went for a walk and a coffee. Oh, what could’ve been. Instead of sitting down tomorrow back to trading £1 per point and full of confidence, I am still trading half size (£0.50 per point) and feeling both a little nervous and frustrated.
But every days a school day as they say, and I know one thing for sure. Not only will I write ‘STOPS’ in big bold letters at the top of the page of my trading journal, alongside the already written PATIENCE – DISCIPLINE – FOCUS, but to quote The Supremes, I’ll make sure I -
‘Stop(s) in the name of trading, before I bust my account….Think it o o ver…’
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