What’s Going On when you Hold Past the Stop

 

I'm always fascinated to hear from traders who have trouble exiting a trade at the stop loss. The ones who move the stop loss further away to avoid the exit. And then move it further. And further.

Until eventually, they can't take the pain any more, so they get out of the trade and destroy several days, weeks or even months of profits.

Personally, I don't recall ever holding past the stop, although I have found evidence of having done it once in the past while reviewing old charts.

Hopefully this was a one-off occurrence. Either way, I've clearly learnt from that at some point.

No-one likes a loss. Me included. But you need to be quite comfortable taking them.

For those of you who have yet to learn how to take a loss, let's discuss what is happening when you hold past the stop.

(Noting of course that this is not always the only issue. Maybe not even the primary issue. Everyone's situation is somewhat unique. But it is a significant factor that I see in a whole lot of cases. So if you're letting price run through you're stops, give this some consideration. It may just be the pathway you need to explore to find your way to greater success.)

This is what we're talking about…

<image: What's going on when you hold past the stop?>

<image: What's going on when you hold past the stop?>

<image: What's going on when you hold past the stop?>

<image: What's going on when you hold past the stop?>

<image: What's going on when you hold past the stop?>

<image: What's going on when you hold past the stop?>

<image: What's going on when you hold past the stop?>

In many cases the primary issue is NOT that you fear losing any money.

Often instead, the problem is that you don't want to be wrong.

YOU DON'T WANT TO BE WRONG!

You rationalise that if you just give it a little more room, and a little more time, price will turn around and prove you right.

It's all ego!

What does it mean to be wrong?

Every trade you get wrong is a dagger in the heart, reminding you of every time you've been painfully wrong in the past. Every time you've failed at something. Every time you fell short of your hopes, dreams and prayers.

Every wrong trade is one small step closer to the ultimate failure of your trading business.

And when you're no longer worthy… what will your family think of you? What will your friends say about you? What will your own mind say about you as you desperately try to fall asleep each night to forget the pain?

You don't want to be wrong!

So you move the stop to give it a little more room. But the fear only increases as price continues to move against you.

You give it more room. Again the fear increases.

And then again… you give it more room.

Until finally… acceptance… you know you're wrong.

And now it's about the money.

The loss is big, but fear of it getting even bigger lets you get out. Because you KNOW you're wrong.

Again, please note that this is not always the only issue. Maybe not always the primary issue. Everyone's situation is somewhat unique. But it is a significant factor in a whole lot of cases.

So if you're letting price run through you're stops, give this some consideration. It may just be the pathway you need to explore to find your way to greater success.

Here's the problem, as I see it.

You're playing the wrong game.

You're playing a game of individual trades.

But this business is not about individual trades.

The outcome of any one trade is irrelevant.

We profit over a series of trades.

You need to accept that this game is not one of being right. But rather one of managing a sequence of wins and losses so that over a large enough sample we can produce a profit.

Wins!

And losses!

They're just a part of the game.

What if you accepted that half your trades would win and half will lose. And you made it your aim to ensure that over any series of trades (20+) your average win was greater than your average loss?

To do this, you absolutely CANNOT let your losses run larger than they need to be.

Take your losses, quickly and decisively. Keep them small. It's only one in 20+ trades in your current series. You've got a whole lot of trades still to come. And some of them will more than compensate for the small loss.

By all means, aim for as high a win rate as you can achieve. But seriously… a 50% win rate IS enough. Just aim to ensure your average win is greater than your average loss.

Happy trading,

Lance Beggs

PS. If this article was useful, you might want to read this as well – http://yourtradingcoach.com/trading-process-and-strategy/Winning-Through-Losing-Better-1-of-2/

 


 

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YourTradingCoach - Admin

4 Comments to “What’s Going On when you Hold Past the Stop”

  1. Roshun says:

    ‘Speculators insure themselves against large losses by taking the first small loss.’–Jesse Livermore.

    One way I found effective to change this bad habit was to actually convince myself that ALL my trade are losing trade & have my focus only on trade management.

    • Lance Beggs says:

      Great comment Roshun. Thanks for sharing that. My beliefs on entry are exactly the same, courtesy of training from Mike Reed and Larry Williams. I believe all trades will be a loser, unless they can prove otherwise. 🙂

  2. Michael says:

    I also find it helpful to constantly keep a plan in mind for all three different contingencies: what needs to happen for me to decide to go long, short, AND wait things out.

    In your specific example, if the stop loss in the first figure is violated that would prompt me to start seeking entry short, due to the lower high that was formed just before: so, if I fail to go long, then I’ll look to go short below the next retracement that does NOT push higher than the latest lower high.

    If there was a support level just below, then I would switch to “wait things out”.

    My point is: I believe (from my own experience) that many mistakes of this type stem from a tendency to commit so much to a plan, that our mind filters out all subsequent evidence that the situation has changed and a different plan is more appropriate. I mean, we can just look at any of our past mistakes with the benefit of hindsight – I guarantee that we’ll see that we simply had a blind spot for clear signs that the market situation was changing.

    So, I just make it a point to make sure I have expectations and a plan for all three contingencies, before every trade I make; we are dealing with an uncertain environment, after all, so everything is always possible! We only need to be good at assessing the most likely scenarios… And never be 100% certain of anything: when that happens to me, I learned the hard way that it’s time for me to call it a day! 🙂

    • Lance Beggs says:

      Yes, great comment. I agree 100%. Having a plan for all three different contingencies helps to keep the mind operating in the realm of an uncertain environment, where all options have potential but are varying in probabilities. The end result, we are less likely to get caught up in the ego trap of “knowing we’re right despite price moving against us”.

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