Putting the Stop Loss in the Wrong Place

Posted by Deb | Day Trading Journey | Friday 26 November 2010 11:44 am




Today was an annoying day. I again traded in the morning, when everything was extremely slow. The indicators indicated I should take a long position, which I did. But it didn’t go up enough for me. I added one more contrace to make a better profit ($37.5 on one contract wasn’t enough for me, see how my expectations change fast), and then of course the market went down. I didn’t want to add another contract to average the loss, as my account is low, but I did put back the stop loss towards the lowest suppost line. But as the market drew close, I was afraid to lose too much. I put the stop loss only 2 pips under the lowest support line, instead of 4 pips lower as I was taught to do.

Of course, the stop loss caught, and I remained with a loss of $287.5. I couldn’t let the situation remain as it is, so I continued to look at the charts. At that point, to my dismay, the market went back. Had I remained in the position I wouldn’t have lost at all. Things were very slow, but at last I got in with another contract and cut the loss to -$137.5. I then decided to add one more position, but as the market was swaying back and forth I exited this position quickly at the same point I went in.

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I am trying to learn what could be learnt from this. One point is of course putting the stop loss in the right place. But for today, I didn’t want to move it any further. With my current shrunken account, I didn’t want to get to a potential loss of over $300.

A second point is that of waiting to long in a losing position. When I guess the market will go up, I can either add contracts to even out the loss or get out of it and step in again later. Waiting with a big loss is stupid. But that’s easier said than doen. Again, with my shrunken account I didn’t want to add any more contracts and make the risk even higher, and running out of a losing position is a good idea, but psychologically going out after a certain point when you see a good chance them market will soon change direction is difficult. As the saying goes, a wise person doesn’t fall into the pits a clever person knows how to get out of. I shouldn’t have gotten to that point.

So the main mistake as I see it is my initial greed. When my first contract was not going beyond a profit of $37.5, I should have quit immediately. I shouldn’t have waited for the second order to get caught. Possibly that is a good strategy when the difference is one or two pips, but not more than that.

OKay, I hope the lesson was learnt. At least I was able to make the loss a bit smaller, so instead of it being 2 steps back after one step forward, it is one step back after one or two forwrard. That is something too.

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