Unfortunately, also seasoned traders fall into this trap of moving stop loss orders. And if it worked out for you once, it just worsens things for you. Are you doing that? Being aware of why you are doing it and the consequences can be a game changer.
Why do you move your stop loss?
So, you took a position in the wrong direction. This happens to everybody. You see the market approaching your stop loss, and you keep a safer distance from it, moving further away from the market and deeper into your pocket. And then you do it again and again. This usually results in a safe loss of money. More money than you planned to risk on the trade.
You may do it because you have new knowledge or a feeling that you now know where the right place to put your stop is. Confidence is great, but seriously, what new knowledge do you have since you placed the trade? Probably not too much. What makes you think that your new placement, while the trade is live, is better than your original plan, when you didn’t have a position, and were more calm?
The original plan was probably better, more balanced. Your hasty new plan isn’t likely to be better.
Another reason can be a fear to lose the trade. But let’s go back to the plan once again. You undertook a specific risk. Calculated risk is part of the game. Extending the stop loss is a bigger risk, that wasn’t calculated properly.
What happens next?
In the majority of cases, the market continues in the wrong direction for you. Why? Well, remember why you put the stop loss there? If the market will take the opposite direction, you just don’t want to be there, and cut your losses quickly. This logic was probably right, and you just lose more.
This means that you lost more than you intended to. This means that you’ll probably erase your account quickly and won’t have enough chances to improve, win trades and get your act together.
But what if the minority scenario works out? What happens if you move your stop losses, the market doesn’t reach them and then bounces in your favor. There’s a good chance you become over-confident. You believe that you can bend the rules.
So you’ll try to do it again, with a bigger-sized position. This may result in the regular scenario of losing more than you planned, and this time, the plans were more loose.
When you disregard a stop sign on the road, this may result in accident or a fine. The same goes for trading.
So please respect your own stop sign, otherwise you’ll get a big fine and your account will have an accident.
Why do you move your stop loss?
So, you took a position in the wrong direction. This happens to everybody. You see the market approaching your stop loss, and you keep a safer distance from it, moving further away from the market and deeper into your pocket. And then you do it again and again. This usually results in a safe loss of money. More money than you planned to risk on the trade.
You may do it because you have new knowledge or a feeling that you now know where the right place to put your stop is. Confidence is great, but seriously, what new knowledge do you have since you placed the trade? Probably not too much. What makes you think that your new placement, while the trade is live, is better than your original plan, when you didn’t have a position, and were more calm?
The original plan was probably better, more balanced. Your hasty new plan isn’t likely to be better.
Another reason can be a fear to lose the trade. But let’s go back to the plan once again. You undertook a specific risk. Calculated risk is part of the game. Extending the stop loss is a bigger risk, that wasn’t calculated properly.
What happens next?
In the majority of cases, the market continues in the wrong direction for you. Why? Well, remember why you put the stop loss there? If the market will take the opposite direction, you just don’t want to be there, and cut your losses quickly. This logic was probably right, and you just lose more.
This means that you lost more than you intended to. This means that you’ll probably erase your account quickly and won’t have enough chances to improve, win trades and get your act together.
But what if the minority scenario works out? What happens if you move your stop losses, the market doesn’t reach them and then bounces in your favor. There’s a good chance you become over-confident. You believe that you can bend the rules.
So you’ll try to do it again, with a bigger-sized position. This may result in the regular scenario of losing more than you planned, and this time, the plans were more loose.
When you disregard a stop sign on the road, this may result in accident or a fine. The same goes for trading.
So please respect your own stop sign, otherwise you’ll get a big fine and your account will have an accident.
Editors’ Picks
EUR/USD struggles for direction amid USD gains
EUR/USD is trimming part of its earlier gains, coming under some mild downside pressure near 1.1730 as the US Dollar edges higher. Markets are still digesting the Fed’s latest rate decision, while also looking ahead to more commentary from Fed officials in the sessions ahead.
GBP/USD drops to daily lows near 1.3360
Disappointing UK data weighed on the Sterling towards the end of the week, triggering a pullback in GBP/USD to fresh daily lows near 1.3360. Looking ahead, the next key event across the Channel is the BoE meeting on December 18.
Japanese Yen bulls have the upper hand as hawkish BoJ outlook offsets risk-on mood
The Japanese Yen remains on the back foot through the early European session on Friday, though it lacks bearish conviction amid hawkish Bank of Japan expectations. Traders have been pricing in the possibility that the BoJ will hike interest rates as early as next week.
Editors’ Picks
EUR/USD struggles for direction amid USD gains
EUR/USD is trimming part of its earlier gains, coming under some mild downside pressure near 1.1730 as the US Dollar edges higher. Markets are still digesting the Fed’s latest rate decision, while also looking ahead to more commentary from Fed officials in the sessions ahead.
GBP/USD drops to daily lows near 1.3360
Disappointing UK data weighed on the Sterling towards the end of the week, triggering a pullback in GBP/USD to fresh daily lows near 1.3360. Looking ahead, the next key event across the Channel is the BoE meeting on December 18.
Gold losses momentum, challenges $4,300
Gold now gives away some gains and disputes the key $4,300 zone per troy ounce following earlier multi-week highs. The move is being driven by expectations that the Fed will deliver further rate cuts next year, with the yellow metal climbing despite a firmer Greenback and rising US Treasury yields across the board.
Litecoin Price Forecast: LTC struggles to extend gains, bullish bets at risk
Litecoin (LTC) price steadies above $80 at press time on Friday, following a reversal from the $87 resistance level on Wednesday. Derivatives data suggests a bullish positional buildup while the LTC futures Open Interest declines, flashing a long squeeze risk.
Big week ends with big doubts
The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.
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