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!
13 comments:
hi assortz,
:)
good one,with a practical reflection ...
mental stoploss is susceptible to discrete confusions & noise manipulations.
hard stoploss is what is needed, as is shown by your long single candle and the followup price range.
regards
moh
assortz,
the interesting thing in that 15min candle is, in 15mTF it exhibits a long upper wick, suggesting momentary buying pressure, immediately counteracted by the sell.
it will reveal wonderful subsets when we get to see the same broken in 5min or lesser candles ... a sequence of the thought & execution process that happened on the news
:)
takecare,
bye
:)
hi az,
interesting post. commodity markets
r open from 10-11.30 so anyway for positional traders also it as very difficult to sit that long. even daily chores taking long time will
make an individual trader leave terminal .
in liquid equity and nifty both i have faced another problem suppose u r short and market at 5330 nf s&r 5340 . once u enter as
sl order typically u'll enter trigger buy price 5340.05 or 5340.15 and buy price 5340.35 or 5340.65 to get a good fill. price suddenly shoots up to 5355. the trigger order gets converted into limit orter (with buy at 5340.35 or 5340.65) and it will most probably not be executed or at best part executed.
Hi Moh,
Yes, it was a practical stuff and i have found that system stop loss was useful on many occasions.
As said by you, there was a momentum for buy as well as counter sell. but, it was very difficult to took a decision whether should add more position or to part book. Main reason for the dilemma was due to some extended consolidation since 2 weeks and i was expecting a huge break-out or break down on some news. Though it happened, it was lesser than the expectation :)
smaller TF charts are here. you can narrate the story from your angle :)
crude 1min chart
crude 5min chart
Hi Piyush,
Yes, positional traders mostly use system stop loss. But,i heard from my broker on that day many people had to square of their positions with huge loss due to mental stop loss. Those people are from both intra as well as from positional category. I know some traders who trades over phone, ask their brokers to call them when certain levels are breached and they do keep mental stop loss and key in stop loss only when they get the levels from brokers. This is too dangerous on these kind of occasions.
Jumping prices are quite common in silver and sometimes in crude oil also. Only way to avoid is by keeping a good spread between your trigger and SL price.I keep 2-3 points of crude oil and 20-40 points of silver depends on the day's volatility. Nifty am keeping 1-2 points spread. I don't bother about extra 1-2 points as am not keeping any filters for SAR so let part of SAR filter go in the spread to make sure that my order is not skipped :)..we all know that even a couple of skips can make huge loss!
az,
such events occur 2-3 times in a year. maybe 2% of trades lets say in 100 trades 2 or 3 trades such volatality may occur. but if a trader keeps very liberal fill i-e 1-2 points from trigger all the 97 normal trades get executed by 1-2 adverse points. this will increase cost.so increasing diff between trigger and buy/sell to get sure fill might not be necessarily a good idea. i can say this for me in nifty as trading time is just 7 hours where even with other work one can keep rates handy. but a trader who is away frm the terminal his dynamics change. he will need a fill. suppose here if a trader is away and prices rise more than this case.
Piyush,
yes..it would be very difficult to manage such jumps to the trader who is away from the terminal. Decision taking would definitely get assaulted for few minutes and such few minutes would drag the loss further.For such people, little relaxed fill is fine. coz, such kind of trades not only affects that particular trade but it would affect your mindset which will lead you to sit out of the next trade too.
hi assortz,
wow, even the 5min candle has the tall wick ...
it all happened within 2 min, 1 for up & 1 for down ...
:)
by the time someone can blink at the screen the whole event would have been over, leave alone consulting deciding keying in /or phoning ...
:)
regards
moh
note: i cannot find the comment subscription option, so thought there was no reply.
now too i cannot find the comment subscription,
Hi moh,
//wow, even the 5min candle has the tall wick ...
it all happened within 2 min, 1 for up & 1 for down//
that's why it prompted me to make a post :).. it was literally within a blink's time.
//by the time someone can blink at the screen the whole event would have been over, leave alone consulting deciding keying in /or phoning//
lol :)..sometimes while trading oil and silver, i feel like gladiator or a debut batsman at west indies pitch as you don't know what kind of weapon or bouncer and from which side will hit you..
I noticed since yesterday that comments form page is totally changed..blogger is making many changes and even i can't see comments subscription button..hope they will plant it here again sooner :)
hi assortz,
i learn from this "west indies" that banknifty volatility is jujubee ...
:)
great to see there is a Dravid in you, to wall up the bouncers.
:)
regards
moh
yeah, most blogger changes, especially in relation to *.in conversion has been handicaps in user terms.
hi assortz,
quoting below Wyckoff's remarks :
"I know a trader who once bought 500 shares of Sugar and then went out to lunch. He paid 25 cents for what he ate, but on returning to the tape he found that the total cost of that lunch was $5000 and 25 cents!
He had left no Stop Order,
Sugar went down ten points,
and his broker sent him a margin call."
ok, the email subscription is back, at last ...
Moh,
it's a pity that sugar gave the sour :)
yes moh, blogger is listening it seems. But, can't take it granted :)
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