I have read and heard this many times. “Never key in your stop loss in the system but keep that in the mind”. Many argue that “mental stop loss” is always better than “ system stop loss”. Ok, here is the simple chart to tell you what a “mental stop loss” can do!
Above chart is not from any trading journal or from any historical data. It’s a 15 min crude oil chart of last evening i.e, 23rd Mar’12. There was news around 7.00 pm that Iran’s crude oil stock would come down sharply this month. Crude oil was trading in the tight range of 5425-5450 since morning and it was slightly moving up and making high around 5460 by 7 pm. But, the moment the speculation about Iran’s oil inventory was out, oil had a gigantic spike to hit 4% upper circuit for a moment and then cooled down.
If someone did not place the stop loss in the system, then it would have been a very tough situation to take a decision as the move was such a harsh one to freeze up in an absolute mere time. So, the moral of the story is never keep a mental stop loss and always key in your stop loss along with a trigger price once your buy or sell trade is done. One can argue that it’s once in a while spike and no need to always key in stop loss in the system as biggies might eat your stop loss. But, this once in a while spike can swipe major share of your trading capital completely.
I was actually holding short position which was sold at 5405 and my SAR was at 5465. I always key in my stop loss immediately after my trade and never wait. Due to the keyed in SL, my loss was restricted to just 60 points i.e, Rs.6000 per lot and the reversed longs actually compensated the loss. If it was a mental stop loss, my losses would have been huge and it must have pushed me out of trading for next few days. We all know that that mother of all the trends would start only when we are away!
Above chart is not from any trading journal or from any historical data. It’s a 15 min crude oil chart of last evening i.e, 23rd Mar’12. There was news around 7.00 pm that Iran’s crude oil stock would come down sharply this month. Crude oil was trading in the tight range of 5425-5450 since morning and it was slightly moving up and making high around 5460 by 7 pm. But, the moment the speculation about Iran’s oil inventory was out, oil had a gigantic spike to hit 4% upper circuit for a moment and then cooled down.
If someone did not place the stop loss in the system, then it would have been a very tough situation to take a decision as the move was such a harsh one to freeze up in an absolute mere time. So, the moral of the story is never keep a mental stop loss and always key in your stop loss along with a trigger price once your buy or sell trade is done. One can argue that it’s once in a while spike and no need to always key in stop loss in the system as biggies might eat your stop loss. But, this once in a while spike can swipe major share of your trading capital completely.
I was actually holding short position which was sold at 5405 and my SAR was at 5465. I always key in my stop loss immediately after my trade and never wait. Due to the keyed in SL, my loss was restricted to just 60 points i.e, Rs.6000 per lot and the reversed longs actually compensated the loss. If it was a mental stop loss, my losses would have been huge and it must have pushed me out of trading for next few days. We all know that that mother of all the trends would start only when we are away!
