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 posts modest gains near 1.1650 amid Fed rate cut bets
The EUR/USD pair posts modest gains around 1.1645 during the early Asian session on Monday. The prospect of a US Federal Reserve rate cut at its December meeting on Wednesday could weigh on the US Dollar against the Euro. Later on Monday, the German Industrial Production and Eurozone Sentix Investor Confidence reports will be published.
GBP/USD consolidates around 1.3330 as traders await Fed rate decision
The GBP/USD pair kicks off the new week on a subdued note and oscillates in a narrow trading band, around the 1.3320-1.3325 region, during the Asian session. Spot prices, however, remain close to the highest level since October 22, touched last Thursday, with bulls awaiting a sustained strength and acceptance above the 100-day Simple Moving Average before placing fresh bets.
USD/JPY loses momentum below 155.50 as Fed rate cut looms, Japan-China military tensions flare
The USD/JPY pair loses ground to near 155.25 during the early Asian session on Monday. The US Dollar weakens against the Japanese Yen as traders brace for the Federal Reserve meeting this week, where policymakers are widely expected to cut interest rates.
Editors’ Picks
When is the China’s Trade Balance and how could it affect AUD/USD?
The General Administration of Customs will publish its data for November on Monday at 03.00 GMT. AUD/USD trades on a negative note on the day in the lead up to the China’s Trade Balance data. The pair edges lower as markets turn cautious ahead of the Reserve Bank of Australia and US Federal Reserve interest rate decisions later this week.
USD/JPY loses momentum below 155.50 as Fed rate cut looms, Japan-China military tensions flare
The USD/JPY pair loses ground to near 155.25 during the early Asian session on Monday. The US Dollar weakens against the Japanese Yen as traders brace for the Federal Reserve meeting this week, where policymakers are widely expected to cut interest rates.
Gold drifts higher above $4,200 on Fed rate cut expectations
Gold price trades in positive territory near $4,205 during the early Asian session on Monday. The precious metal edges higher as markets widely expect the Federal Reserve to cut interest rates at its December meeting on Wednesday.
Week ahead: Rate cut or market shock? The Fed decides
Fed rate cut widely expected; dot plot and overall meeting rhetoric also matter. Risk appetite is supported by Fed rate cut expectations; cryptos show signs of life. RBA, BoC and SNB also meet; chances of surprises are relatively low. Dollar weakness could linger; both the aussie and the yen best positioned to gain further. Gold and oil eye Ukraine-Russia developments; a peace deal remains elusive.
The Silver disconnection is real
Silver just hit a new all-time high. Neither did gold, nor mining stocks. They all reversed on an intraday basis, but silver’s move to new highs makes it still bullish overall, while the almost complete reversals in gold and miners make the latter technically bearish.
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