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 hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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