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Why I use hard stops


Hi,

This week JUNO was on my short watch list, it started a gap up but close it and went lower very nice, I watched it and looked for a short entry, but I was lucky before I got in some crazy candle of almost 4$ came in and blow the stock up, making new highs for the day (see attached pic),

This reminded me once again why I always place a hard stop,
Click image for original size
juno ssip 21 4


I remember more than few webinars that I watched listening to some excellent traders/instructors saying they don’t place hard stop but have a mental one, if the price will reach their mental stop they will close the position, I know some traders are sure the market makers see their stops and are just driving them out, I don’t know if it is true now days, but most of the time the stops are according to some technical analysis that everybody can say where the stops are placed whether you place it or not,

I would like you all to think what a candle like this one will make to your account, think about the number of shares you have once it got up and very fast up, you are -2$ for XXX shares, can you close it ? Can you close it? Do you have the mental power to fight the urge to wait and see if it can get back lower? Just to see it was halted, will your emotional system will survive such a blow?

In the business of risk management you can’t take a risk that will kill your business, you can play Russian roulette and make a lot of money but just once is enough to be out for good, this is why you must ask yourself can you handle a loss that big, can you handle the emotional distress in a losing position that just get bigger and fast?

For most developing traders this specific trade without a hard stop would take them out, might be the money or it might be the pain of such a big loser, don’t go there, place a stop, accept the loss and move on, you are alive to trade for another day and this is the most important thing,

Make the odds in your favor Day Trade
I don't know where you got in or how much $$ percentage wise you are willing to risk per trade, but this is a classic example of why stops hurt a trader. Your short position worked, worked well in fact but you got stopped out for a loss.

Anywhere that you might have entered short went for a very nice winner.

Rather than stops, maybe reconsider your position sizing.

Good luck.
Thanks for sharing. My biggest nightmare trades have come from fast reversals. My gut reaction was "there's gonna be a retracement", which was incorrect. Instead of losing 2 points ($100) on an e-mini one lot, I lost over $300 several times.

The problem with not using a hard stop is I had trades that went two points against me, then came back a little. So I only lost 50 or 75 dollars. But when I look at my history, the sum of the big losses is much greater than the retracement "savings".