WHY STOP LOSSES ARE THE SINGLE MOST IMPORTANT TOOL TO AVOID A TRADING CATASTROPHE

For 6 years of my trading career I was one who never used stop losses. Truthfully, I didn’t even understand what they were. Reading some of the best trading books and listening to prominent figures in the trader world discuss stop losses still had no influence on me using them.

I was in the TVIX 3x S&P trade once without a stop in place. If you don’t know what that is google it or I’ll provide a separate post explaining it in clear detail per request. At the time, the S&P was experiencing an intermediate short term correction and was showing more downside risk, or at least that’s what my novice training experience concluded. I had been in the trade for about 2 days and my P&L was a little over 2k. Mind you the previous week I mad about 4k jumping in and out of the position.

Then to my surprise the market begin to show signs of improvements and charts indicated a reversal eminent. I didn’t know this then so I held long the position. Mind you my entire bankroll was on the line and I had NO stop loss in sight. Not 2 points below entry, not 10%, 5%, below entry. 0, zilch, nada. SMH, what a foolish trader I was. I ended up holding the position over months to years and felt like a complete jack ass. How could I not protect my capital?! What were you thinking?!

Bottom line, each trade should have a stop loss in place. It’s a vital tool in keeping you trading for the long term. Stops can be placed at key support areas, points, percentages, whatever you feel most confident with. Use them, or else you will be telling this story to someone else or even worse end your trading career prematurely.

Do you guys have horror stories to share? Leave a comment below!

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