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April 24, 2013 at 4:11 PM The answer to the question, lies in the STOP! On December 20th 2012, the unthinkable happened.. the S&P 500 Emini Futures dropped 45 points in a matter of minutes prompting me to pen a cautionary tale turned prime directive -
December 20, 2012 at 9:38 PM Stop Loss Order - The Primary Tool For Successful Trading
How many times have I heard - "I don't use a stop because it always gets hit".
Well, that's kind of the point. Not that it should always get hit, but that it does get hit every time your trade idea doesn't match up with the markets idea. Remember, the market can remain irrational far longer than most of us can remain solvent.
When I hear that statement my ears always perk up. In fact, anytime I hear the words Always or Never in relation to trading, I get tickled. Why? Trading is a lot of things, but it's rarely "always or never" anything. Think about this, if your Stop did get hit every time, on every trade (always), that means without realizing it, you've got a pretty good knack for knowing exactly where the market is headed next. If it "always" goes there, perhaps that should be your target and not your stop. When I challenge most folks with this, the "always" comes unraveled pretty quickly. Turns out, it doesn't always happen, just enough to make you feel wrong and feeling wrong is a very dangerous emotion.
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