By: Chris Irvin, Veteran Instructor & Trader at The Wizard
My last blog (May 9, 2012) spent some time dealing with the logical and emotional sides of the brain and how the flow of information from side to side differs between men and women. Among other things I suggested that in order for a male trader to be successful they have to have an exit strategy before entering a position because our egos can often get in the way of solid decision making while in the middle of the trade. I am a firm believer that traders need to define exits prior to entering a position because this is the only time when ego is not an issue in the process. This idea brought up a valid comment from one reader. “Wouldn’t it be easier to just put a trailing stop on your position rather than defining a solid stop loss level?” It probably would be easier, but is it the best? In this blog I would like to explain why I believe repositioning stop losses manually is a better idea than using trailing stops, if you have the option of course. If you are a trader that does not have the ability to adjust stop losses manually due to schedule, or circumstance, the trailing stop is a great tool. If you do have the ability to babysit your trades then I believe it is better to reposition the stops on your own.
Before debating whether manually repositioning stop losses is better than setting an automated trailing stop, I need to point out that even a manual stop loss is really automating your trading process. The question is “can you be more successful if you use a little of your own elbow grease rather than setting an automated trailing stop?” Continue reading "Me Centered or Stock Centered?"→
As traders we tend to think the most important part of trading is making money. This is what we all want, but sometimes we don’t pay enough attention to what is really important and that is protecting our money.
You’ve heard the terms “stop-loss” and “money management” over and over. Most of us are familiar with the basics of a stop, but did you know that there are three different types that you can employ to protect your capital?
Do you use stops on all your trades? Trading without stops is the ego wanted to never be held accountable to admit that a position was a mistake if a certain level is breached or if a certain set of circumstances play out in an unexpected manner.
Let the market take you out. This takes your ego out of the decision - this decision on what stop level to exit should be calculated before entering the trade. Again you want to prevent your mind playing tricks by rationalizing a new reason to hold on to a poor performer. I review my trading journal each day in order to remind myself of the #1 Entry Driver for the positions and key stop levels. If any of these are broken, I have lost the edge projected and should exit such busted trade’s immediately.