Stop losses. Are they the tools of winners or losers?
- Thread starter peilthetraveler
- Start date
I have no clue, but I sure hope he is okay. Getting wiped out would be devastating--especially when trading with other peoples monies.
My $.02.....
The ONLY way anyone is going to make significant profits is to make large*, unhedged bets.... and be correct "enough".
The only way to protect your capital when you make "large unhedged bets", is to exercise some sort of stop discipline.
*Remember reading years ago about how some guy was "killing it"... When asked about "how much of your capital is committed to this trading?"... his answer was "5%". When asked, "what are you doing with the rest of your money?", the answer was "T-Bills".
LOL! You could "watch a monkey fuck a football for 5%".... virtually the same as paper trading...
The ONLY way anyone is going to make significant profits is to make large*, unhedged bets.... and be correct "enough".
The only way to protect your capital when you make "large unhedged bets", is to exercise some sort of stop discipline.
*Remember reading years ago about how some guy was "killing it"... When asked about "how much of your capital is committed to this trading?"... his answer was "5%". When asked, "what are you doing with the rest of your money?", the answer was "T-Bills".
LOL! You could "watch a monkey fuck a football for 5%".... virtually the same as paper trading...
There are perhaps a half-dozen approaches to "skinning the market's cat". Trading is but one. Buffet's is another.
Yes in theoretically all seems beatiful
You bou XYZ stock for $10.00. Your target is 10.50 and stop loss is 9.90
But in reality stop loss has very poor execution.
In reality your stops triggers Sell order @9.90
U will be executed prize around 9.76 @market order....
What happens?
day LOW IS 9.76 and prize swings back to 10.00 level....
And its reality.
If there is major event are taking place, the prize drops to 5.00. Then stop loss doesnt help you, becouse bid side is empty...
You bou XYZ stock for $10.00. Your target is 10.50 and stop loss is 9.90
But in reality stop loss has very poor execution.
In reality your stops triggers Sell order @9.90
U will be executed prize around 9.76 @market order....
What happens?
day LOW IS 9.76 and prize swings back to 10.00 level....
And its reality.
If there is major event are taking place, the prize drops to 5.00. Then stop loss doesnt help you, becouse bid side is empty...
If you use a stop and you honor it then it means you know the risk on the trade and you embrace the risk on the trade. With that knowledge of risk and acceptance of risk - you can let the trade go. Now you are detached from the result of the trade and so you can trade with lot more confidence, a lot less emotion, and a more long term outlook.
If you don't use a stop then you are ignorant of the risk on the trade. With that ignorance comes doubt, uncertainty, and confusion about risk that makes it impossible to accept the risk of the trade. So then you just get married to the trade and you "hold and hope" that you get "lucky" - kinda the same feeling you get at a casino table when you put on a bet.
With all that being said using stops can greatly reduce your profitability if you misuse them.
If you don't use a stop then you are ignorant of the risk on the trade. With that ignorance comes doubt, uncertainty, and confusion about risk that makes it impossible to accept the risk of the trade. So then you just get married to the trade and you "hold and hope" that you get "lucky" - kinda the same feeling you get at a casino table when you put on a bet.
With all that being said using stops can greatly reduce your profitability if you misuse them.
Truth be told, and this is something most of you forget.
WINS ARE NOT LINEAR, THEY ARE NOT ALL THE SAME
anyone who has ever made it in trading, and I MEAN EVERYONE
has had a few HUGE MONSTER LUCKY WINS--- sometimes these wins occur several times a year, sometimes not for 2 years BUT THEY WILL OCCUR. it is these monster wins that make you a winner in trading, NOT THE DAILY CHURNING OUT A LIVING or worse.
STOPS prevent the BIG WINS from happening, or at the very least make the odds MUCH LESS as they often take you out of the game right prior to a reversal that MAY BE THE BIG WIN!
WINS ARE NOT LINEAR, THEY ARE NOT ALL THE SAME
anyone who has ever made it in trading, and I MEAN EVERYONE
has had a few HUGE MONSTER LUCKY WINS--- sometimes these wins occur several times a year, sometimes not for 2 years BUT THEY WILL OCCUR. it is these monster wins that make you a winner in trading, NOT THE DAILY CHURNING OUT A LIVING or worse.
STOPS prevent the BIG WINS from happening, or at the very least make the odds MUCH LESS as they often take you out of the game right prior to a reversal that MAY BE THE BIG WIN!