Do you remember the last time you put on a trade without an actual hard stop? You know, that trade where you promised yourself that you would get out (no matter what) if the particular stock or futures contract traded past a certain “drop dead” level. In theory, this tactic seems fine, but the reality is that this rarely works as emotions too often play a role in the decision. In this scenario what happens most often is that when the price nears that so-called drop dead level, you relax the stringency of executing an exit and end up staying with the trade. You do so until the point at which the pain of holding this trade becomes unbearable. This is the breaking point; the only course of action here is to liquidate the trade. After it’s over, you feel frustrated and disgusted because you didn’t follow the rules, and to add insult to injury, your exit marked the point at which the market turned.
When you stop to think about how much negative energy was… Continue Reading