Stops, Stops, Stops!
By Cliff Clark
Why aren't you taking your stops? You know who you are, yes I am talking to you! You know what's going to happen. One of two things will happen. The stock price will continue to fall and eventually you won't be able to take the pain anymore, you will then close out the trade for a very large loss or worse yet become a long term investor in the stock. If that doesn't happen and the stock some how bounces higher you will sell at break even. Oh come on, don't look at me like that, you know you will. You will sell at break even because you will be so relieved you didn't lose. You will almost never make money on a trade when you fail to take a stop.
The question is why don't we take our stops. I'm sure there are many reasons. Perhaps someone is new to trading, then it's somewhat understandable. They have probably never heard of a stop loss, the market teaches us that stocks can only go up over time. Other's may understand what a stop loss is and claim that they use them. But in reality they don't have a clear handling of reading the charts. After being stopped out countless times because of this lack of understanding they just stop taking their stops. Some are convinced that the market is against them and if they put a stop in the system they will magically be stopped out within minutes. The truth is nobody is after your stops. Some others may have created a trading plan but just can't follow it. Perhaps they haven't done the proper tracking so they have no confidence in their plans. In any case there are endless reasons why traders fail to take their stops.
You can't make a living in the markets unless you learn to take your stop losses. The way to have confidence that you are setting proper stop losses is to have a trading plan that defines your strategies and money management. Tracking your trades over time will indicate whether or not you are setting proper stops. If you start trading with very small risk you'll likely not have a fear of taking your stop loss. As you increase your risk over time the fear of taking your stop losses will eventually disappear.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
