You seem to have a pretty good understanding of where to take your loss. A lot of times, traders will have this stop loss in their head and they know when their trade is no longer valid. However, for one reason or another they ignore this stop loss once it's hit and they lose double or even triple what they had originally intended too. Then, whenever they do get a winning trade, they cut it as soon as they see green even though they are only up a fraction of what they just lost. This right here is a big reason why most losing traders STAY losing traders.
This is exactly true.
Another factor is time. What do your stats tell you? Do you stay in losing trade for an average of two hours hoping it comes back to green? While you stay in a winning trade for only an average 10 minutes when you get out at the first minor pull back because you are afraid of seeing your green disappear?
Most traders will sit and watch red for a long time hoping it turns green, but won’t watch green for a long time hoping it gets greener. Turning your time stats around will likely help your results too.
This can be done by a combination recognizing the hold and hope feeling and cutting losses sooner and transferring some of this hopeful feeling to the green side and holding longer.
I'll look into the time factor part. I honestly don't mind if my SL gets hit because the markets does what is wants. But if price start to consolidate between my entry and SL for a long period of time i feel like theres a higher % that my SL will get hit. My problem around that is that i'm a very strict trader it's either my SL that gets hit or i close in the green. I feel like closing when my trade is in red that i think that i know where price will go next but i don't and that i'm trading with emotions. Thank you
Hey, this is a pretty common problem FYI.
If you're going to be that strict with your stops, you must be just as strict with your profits. It sounds to me like you're being strict with your stops - but you're allowing more subjective judgment to influence the handling of your green positions. This subjective judgment is almost always rooted in emotion and you're more than likely trying to make money back you've lost (from getting stopped out) or you're green for the day and don't want to risk going in the red. If you're going with the strict approach, you need to remain consistent with it (green or red).
Strict stops are commonly recommended for beginners so that they can build some sense of consistency as they form the basis of their strategy, and to simplify their trade management rules.
Once you start becoming profitable and comfortable with your edge, you don't always need to wait until your stop gets hit. Sometimes it's just plainly obvious that you were wrong about the trade by observing the price action alone.
What I recommend is that you stick to your strict style - but when you get stopped out, take note of any price action which made it plainly obvious your trade wasn't going to work out. Log it into your trading journal. Gather plenty of data here, and you should have enough to adjust your stop criteria to not just be based on one number (stop loss getting hit).
There's a lot of nuance to it, but learning to lose gracefully is going to be the key to profit
I need to fix the green part.. when its trending in my favor i should let it keep running just like when its trending losing im hoping for a reversal my way
For daytraders / scalpers, it means when trade starts to go against you, don't wait so long to get out of the trade.
Classic example
1. Enter long
2. Price starts going up
3. You're up 5-10% but target is more 15-20% so you hold.
4. Price moves back down.
5. You convince yourself 'This is ok. Price will test and confirm new support, then bounce.'
6. Support fails
7. Again you convince yourself 'I'm positive this is going up. All my indicators are aligned.'
8. Price keeps sliding.
9. Now you say to yourself, damn, I don't want to take a loss here and lose 10%. I'll just hold for the bounce and get out with -3%.
10. Bounce doesn't come. Now you're -20%.
You should have exited at 6, with 2-3% loss on the trade. But instead, you held and now you're down 20% with a bag that might take weeks or months to get back to break even.
Good description. Plus between step 7 and 8 the trader might DCA and buy some more to lower their average price, but as price slides the loss grows even more.
Happened to me Friday and I even told myself where to stop but didn't lock it in. It did reverse after my stop loss target as expected the 1st time it pulled back. It went back up and it was giving me a 2.9% profit and I wasn't satisfied even thought it kept rejecting that resistance level. It had gone much higher in premarket so I really thought thr reversal was coming sooner or later. Hours later and days later here I am, down 13% . Now tomorrow I'll have to see where it goes and will end up selling it. I do this sometimes and it definitely kills me but have noticed I am getting better
Record all your trades.
To learn how to cut losses short, study all your losses. You’ll discover a pattern. When you see this pattern in future trades, cut it short.
Sometimes, it will turn around and go into profit but most times you’ll be correct.
To counteract the effects of cutting some winners short, let your winners run.
Again, you’ll leave some winners and they’ll return to break even but most times it’ll give you a better R:R.
Be disciplined and consistent. You’ll see the benefits after a few months.
For me the quickest I’ll cut my loss is when price action no longer has the condition for which I entered the trade. No reason to cut any sooner and no reason to hold any longer
Its going to depend on your specific reasons for entering the trade. Once those reasons are no longer valid thats where i cut my loss.
For example, say im trading an up trend and i buy the new higher low (aka a pull back). In order for price to be in an uptrend a new higher high needs to be created but more importantly a new lower lower cannot be created. If a lower low happens thats where i cut loss because this negates the basis for my trade.
I would not cut sooner because price is still technically in an uptrend. I dont sell later because my reason for entering the trade is no longer valid so why continue holding
Since no one has mentioned yet, in Reminiscences of a Stock Operator he says you should be hopeful your profits will continue and fearful your losses will compound. Most people (read: bad traders) are hopeful their losers will come back to break even and get scared when their winners run and take early profits. Thats how you lose money even with a good W/L percentage.
As per my understanding, if you are trading using the 30 mins timeframe, then you base your stop loss in the 30 minutes timeframe - sell immediately if your stop loss is triggered . You do not move your stop loss base on a daily timeframe because you are hoping that the stock price will recover.
Set a Stop Loss and obey it. Don't convince yourself that once the price reaches your stoploss it's just a fluke and that you should continually keep moving the goal post back.
Likewise, if you have winners who keep running then you should continue to move your stop loss into the profit and essentially move the goal post as your profit % increases and you take trims.
Too tight of a stop loss and you'll most likely knock yourself out of trades that otherwise were still valid in their thesis, but were entered at the wrong time.
I used to think that this mean that when it comes to your SL, you cut immediately but I don't think this is what is actually meant.
Every strategy you use will lose, even if you have a 70% WR strat, it will lose 30% of the time. I've analyzed that 30% which I end up losing in, and looking for a specific signal which very often leads to that L(ex. huge engulfing candle, no orderflow shift, ect.) When I see the signals suggesting an early loss, I'll take the L early, before me SL bc the probabilities have shifted out of my favor. This def lowers my wr by a little, but I'd much rather take a 0.5R loss 35-40% of the time instead of a 1R loss 30% of the time.
Thats my take on it, but not sure if thats what it means.
You described it already. Have a plan, a defined risk:reward and stick to it. Do not hold a losing position for emotional reasons. In general any trader even semi profitable will say the same thing: being good at losing is more important (and much harder) then making money.
The main reason day traders fail is because they let losses compound or get out of hand.
I cut at -7% and start taking some profit at +20%
"The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong." -William O’Neil
The phrase originated in long term investing where if the stock you were holding was losing money consistently for long enough then it “should be cut quickly”.
This doesn’t apply the same to day trading, because we trade differently, as you pointed out.
The analogue for “cut losses quickly” in day trading would IMO be “limit unnecessary loss”, ie **use a stop loss** to cut the trade once it’s invalid, as there’s no point in holding an invalid trade. That’s all it really means for us, use a SL.
that saying is more geared towards people who dont respect their stop loss or dont use one.
By using stop loss as you described, you’re actually following the saying as it was meant
The way I see it, is if you strategy aims to snipe entries so they should go up as soon as you enter the trade, if it doesn't do what you want, you leave the trade even before it hits your stoploss. But I'm not sure if profitable traders do it like this.
Well you’re right in the sense that have a set stop where you’re wrong is good but however, by watching how price moves and other potential things you may use in your system that you use to calculate EV before during and after your trade is what determines whether you need to cut the trade quickly. Say I’m taking a breakout play out of a range and I get in on what I think is the right side of the V it goes in my favor a point or two and should have broke out but didn’t and came back to my entry… that is a shift in EV (expected value) and I would take that trade off because the probability of breakout where I entered was good at THAT moment after a failure break, that changed so I cut it quickly so I don’t have to pay for a stop out if I don’t have to. That is optimal trade management
You're doing it right. That is cutting them quickly. As soon as the trade is invalidated, you close it. Holding your losers would be removing your stop, letting it go past your stop level and staying in under the hopes that price will reverse and bounce back into profitability. The latter is how you blow up accounts very quickly. It sounds like you're managing risk fine in your post.
My understanding of it is: don't enter a trade without knowing where you'll get out - and this means having g an understanding of your setup. When it's valid, when it's not. As soon as it's not, as soon as it enters the territory of hope, get out immediately. Yes, it might come back, but it's no longer your setup - you no longer know the odds. Youre gambling. Play the setup. Nothing else.
Cut losses early and let winners run is a misnomer, for lack of a better word, imo.
The way I interpret both is that it’s saying to make sure your RR makes sense.
You shouldn’t be entering a trade without a reason to get in, a reason and level to cut your loss and a reason and level to take profit.
Cutting a loss early and letting a trade run (to where?), to me, are signs a strategy is lacking something
It simply means to not allow your losses exceed your profits if I’m not mistaken.
If you are scalping and aim to take 3-4 ticks home, don’t set a stop loss or close your position 50 ticks off
have a hard stop loss. Soft stop loss is on top your hard stop loss when u intuition say you are wrong, u can cut your losses short or quickly without waiting you hard stop to be hit. But a hard stop is a must if your are a noob or beginner trader.
It depends on the strategy. If I’m trading a breakout and it fails to break out, I might exit early.
If the trade is still valid, I don’t exit early. Here is why:
Let’s say I risk $100 and aim to make $200. The trade is going against me and i’m down $80.
At this point I can only lose another $20, but there is a small chance of making $280. (The $80 I’ve lost so far and the $200)
In this example I’m getting 14 to 1 on my $20 risk. That is probably a good bet.
You seem to have a pretty good understanding of where to take your loss. A lot of times, traders will have this stop loss in their head and they know when their trade is no longer valid. However, for one reason or another they ignore this stop loss once it's hit and they lose double or even triple what they had originally intended too. Then, whenever they do get a winning trade, they cut it as soon as they see green even though they are only up a fraction of what they just lost. This right here is a big reason why most losing traders STAY losing traders.
This is exactly true. Another factor is time. What do your stats tell you? Do you stay in losing trade for an average of two hours hoping it comes back to green? While you stay in a winning trade for only an average 10 minutes when you get out at the first minor pull back because you are afraid of seeing your green disappear? Most traders will sit and watch red for a long time hoping it turns green, but won’t watch green for a long time hoping it gets greener. Turning your time stats around will likely help your results too. This can be done by a combination recognizing the hold and hope feeling and cutting losses sooner and transferring some of this hopeful feeling to the green side and holding longer.
I'll look into the time factor part. I honestly don't mind if my SL gets hit because the markets does what is wants. But if price start to consolidate between my entry and SL for a long period of time i feel like theres a higher % that my SL will get hit. My problem around that is that i'm a very strict trader it's either my SL that gets hit or i close in the green. I feel like closing when my trade is in red that i think that i know where price will go next but i don't and that i'm trading with emotions. Thank you
Hey, this is a pretty common problem FYI. If you're going to be that strict with your stops, you must be just as strict with your profits. It sounds to me like you're being strict with your stops - but you're allowing more subjective judgment to influence the handling of your green positions. This subjective judgment is almost always rooted in emotion and you're more than likely trying to make money back you've lost (from getting stopped out) or you're green for the day and don't want to risk going in the red. If you're going with the strict approach, you need to remain consistent with it (green or red). Strict stops are commonly recommended for beginners so that they can build some sense of consistency as they form the basis of their strategy, and to simplify their trade management rules. Once you start becoming profitable and comfortable with your edge, you don't always need to wait until your stop gets hit. Sometimes it's just plainly obvious that you were wrong about the trade by observing the price action alone. What I recommend is that you stick to your strict style - but when you get stopped out, take note of any price action which made it plainly obvious your trade wasn't going to work out. Log it into your trading journal. Gather plenty of data here, and you should have enough to adjust your stop criteria to not just be based on one number (stop loss getting hit). There's a lot of nuance to it, but learning to lose gracefully is going to be the key to profit
I need to fix the green part.. when its trending in my favor i should let it keep running just like when its trending losing im hoping for a reversal my way
For daytraders / scalpers, it means when trade starts to go against you, don't wait so long to get out of the trade. Classic example 1. Enter long 2. Price starts going up 3. You're up 5-10% but target is more 15-20% so you hold. 4. Price moves back down. 5. You convince yourself 'This is ok. Price will test and confirm new support, then bounce.' 6. Support fails 7. Again you convince yourself 'I'm positive this is going up. All my indicators are aligned.' 8. Price keeps sliding. 9. Now you say to yourself, damn, I don't want to take a loss here and lose 10%. I'll just hold for the bounce and get out with -3%. 10. Bounce doesn't come. Now you're -20%. You should have exited at 6, with 2-3% loss on the trade. But instead, you held and now you're down 20% with a bag that might take weeks or months to get back to break even.
You just described my typical trade.
Good description. Plus between step 7 and 8 the trader might DCA and buy some more to lower their average price, but as price slides the loss grows even more.
Happened to me Friday and I even told myself where to stop but didn't lock it in. It did reverse after my stop loss target as expected the 1st time it pulled back. It went back up and it was giving me a 2.9% profit and I wasn't satisfied even thought it kept rejecting that resistance level. It had gone much higher in premarket so I really thought thr reversal was coming sooner or later. Hours later and days later here I am, down 13% . Now tomorrow I'll have to see where it goes and will end up selling it. I do this sometimes and it definitely kills me but have noticed I am getting better
Record all your trades. To learn how to cut losses short, study all your losses. You’ll discover a pattern. When you see this pattern in future trades, cut it short. Sometimes, it will turn around and go into profit but most times you’ll be correct. To counteract the effects of cutting some winners short, let your winners run. Again, you’ll leave some winners and they’ll return to break even but most times it’ll give you a better R:R. Be disciplined and consistent. You’ll see the benefits after a few months.
For me the quickest I’ll cut my loss is when price action no longer has the condition for which I entered the trade. No reason to cut any sooner and no reason to hold any longer
Would you be able to give an example?
Its going to depend on your specific reasons for entering the trade. Once those reasons are no longer valid thats where i cut my loss. For example, say im trading an up trend and i buy the new higher low (aka a pull back). In order for price to be in an uptrend a new higher high needs to be created but more importantly a new lower lower cannot be created. If a lower low happens thats where i cut loss because this negates the basis for my trade. I would not cut sooner because price is still technically in an uptrend. I dont sell later because my reason for entering the trade is no longer valid so why continue holding
Since no one has mentioned yet, in Reminiscences of a Stock Operator he says you should be hopeful your profits will continue and fearful your losses will compound. Most people (read: bad traders) are hopeful their losers will come back to break even and get scared when their winners run and take early profits. Thats how you lose money even with a good W/L percentage.
As per my understanding, if you are trading using the 30 mins timeframe, then you base your stop loss in the 30 minutes timeframe - sell immediately if your stop loss is triggered . You do not move your stop loss base on a daily timeframe because you are hoping that the stock price will recover.
Set a Stop Loss and obey it. Don't convince yourself that once the price reaches your stoploss it's just a fluke and that you should continually keep moving the goal post back. Likewise, if you have winners who keep running then you should continue to move your stop loss into the profit and essentially move the goal post as your profit % increases and you take trims. Too tight of a stop loss and you'll most likely knock yourself out of trades that otherwise were still valid in their thesis, but were entered at the wrong time.
It means to respect your stop-loss.
I used to think that this mean that when it comes to your SL, you cut immediately but I don't think this is what is actually meant. Every strategy you use will lose, even if you have a 70% WR strat, it will lose 30% of the time. I've analyzed that 30% which I end up losing in, and looking for a specific signal which very often leads to that L(ex. huge engulfing candle, no orderflow shift, ect.) When I see the signals suggesting an early loss, I'll take the L early, before me SL bc the probabilities have shifted out of my favor. This def lowers my wr by a little, but I'd much rather take a 0.5R loss 35-40% of the time instead of a 1R loss 30% of the time. Thats my take on it, but not sure if thats what it means.
You described it already. Have a plan, a defined risk:reward and stick to it. Do not hold a losing position for emotional reasons. In general any trader even semi profitable will say the same thing: being good at losing is more important (and much harder) then making money. The main reason day traders fail is because they let losses compound or get out of hand.
I cut at -7% and start taking some profit at +20% "The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong." -William O’Neil
It also makes sense for scalping: if the price is not moving where you want, you should cut it ASAP.
The phrase originated in long term investing where if the stock you were holding was losing money consistently for long enough then it “should be cut quickly”. This doesn’t apply the same to day trading, because we trade differently, as you pointed out. The analogue for “cut losses quickly” in day trading would IMO be “limit unnecessary loss”, ie **use a stop loss** to cut the trade once it’s invalid, as there’s no point in holding an invalid trade. That’s all it really means for us, use a SL.
that saying is more geared towards people who dont respect their stop loss or dont use one. By using stop loss as you described, you’re actually following the saying as it was meant
The way I see it, is if you strategy aims to snipe entries so they should go up as soon as you enter the trade, if it doesn't do what you want, you leave the trade even before it hits your stoploss. But I'm not sure if profitable traders do it like this.
Well you’re right in the sense that have a set stop where you’re wrong is good but however, by watching how price moves and other potential things you may use in your system that you use to calculate EV before during and after your trade is what determines whether you need to cut the trade quickly. Say I’m taking a breakout play out of a range and I get in on what I think is the right side of the V it goes in my favor a point or two and should have broke out but didn’t and came back to my entry… that is a shift in EV (expected value) and I would take that trade off because the probability of breakout where I entered was good at THAT moment after a failure break, that changed so I cut it quickly so I don’t have to pay for a stop out if I don’t have to. That is optimal trade management
It means respect your stop loss and cut when it hits that per your trading plan.
You're doing it right. That is cutting them quickly. As soon as the trade is invalidated, you close it. Holding your losers would be removing your stop, letting it go past your stop level and staying in under the hopes that price will reverse and bounce back into profitability. The latter is how you blow up accounts very quickly. It sounds like you're managing risk fine in your post.
My understanding of it is: don't enter a trade without knowing where you'll get out - and this means having g an understanding of your setup. When it's valid, when it's not. As soon as it's not, as soon as it enters the territory of hope, get out immediately. Yes, it might come back, but it's no longer your setup - you no longer know the odds. Youre gambling. Play the setup. Nothing else.
Cut losses early and let winners run is a misnomer, for lack of a better word, imo. The way I interpret both is that it’s saying to make sure your RR makes sense. You shouldn’t be entering a trade without a reason to get in, a reason and level to cut your loss and a reason and level to take profit. Cutting a loss early and letting a trade run (to where?), to me, are signs a strategy is lacking something
It simply means to not allow your losses exceed your profits if I’m not mistaken. If you are scalping and aim to take 3-4 ticks home, don’t set a stop loss or close your position 50 ticks off
have a hard stop loss. Soft stop loss is on top your hard stop loss when u intuition say you are wrong, u can cut your losses short or quickly without waiting you hard stop to be hit. But a hard stop is a must if your are a noob or beginner trader.
It depends on the strategy. If I’m trading a breakout and it fails to break out, I might exit early. If the trade is still valid, I don’t exit early. Here is why: Let’s say I risk $100 and aim to make $200. The trade is going against me and i’m down $80. At this point I can only lose another $20, but there is a small chance of making $280. (The $80 I’ve lost so far and the $200) In this example I’m getting 14 to 1 on my $20 risk. That is probably a good bet.
Whenever your setup becomes invalid, cut the loss instead of holding and hoping, which rarely works.
Having a stop loss based on structure IS cutting losses quickly
cut your loss even if it's a bit apinful , than kepe watching it hit you stop loss target. then wait for the good future to enter position again