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Avoid losing trades?

And knowing how to manage them.

What to do when you are getting stopped too often.

Trading doesn’t always go well. There are times when your trades check all boxes, but despite that, you keep running into your stop losses.

There are times when the losing streak is because of factors specific to your trading style, like selection criterion, your mood, or trading psychology amongst many other things.

To overcome the pressing issue, it’s important to figure out the reason for frequent stopping out and address the same in the next step.

Here are some prominent reasons traders encounter a losing streak:

Timing: Hostile Market

Sometimes markets are too nasty to trade. When there is a broad-based correction, there is high likelihood that most of your trades will gravitate towards the stop loss. Even the best of the set-ups and breakouts start looking ugly when markets take a turn.

As we approach the end of June 2022, many are seeing this exact scenario happen, but its important that you understand that the stops being hit are in all probability due to the market and not the specifics of the individual strategy.

Can you imagine any long biased approach over the last 6 month in the US market doing well? no, the weight of the market would have taken many stops out of many solid strategies, it's important to recognise the macro element not just your specific set up.

A corrective market doesn’t necessarily mean that you won’t have potential trades. You might have a few trades, but they won’t always go too far before succumbing to some form of selling pressure. The trades are more likely to turn much before the price reaches your profit target, if you have one...

To overcome the 'losing streak' when the markets are hostile, you can stop trading categorically as a rule until the market improves. Or, If you don’t want to stop and still dribble, there are a few things you could do:

1) You could take your profits quickly and narrow your stop losses to change the dynamics of your trading until the market conditions improve.

2) Reduce position size and reduce position volume. Its not often I have more than a handful of positions with much equity exposure during a bear market. There are in fact many times where I will not hold a position for weeks on end.

When market conditions improve you can slowly increase position size and volume to take advantage of the eventual uptrend.

This is where you can really compound you returns.

Selection criteria: Trading too volatile stocks.

If you are getting stopped out more frequently than normal even when the market is good, there could be a problem with the specifics of the stocks you are trading.

If you are trading stocks that are too volatile or illiquid, you would be beating yourself again and again. Such stocks might have the probability of moving in your direction but not before knocking you out by hitting your stop loss.

To overcome this, you can put in a market cap size and volatility filter while screening. In the strategy I teach in Our group I use the NATR (Normalised Average True Range) for that reason .

Such a tactic will 'help' keep high volatile stocks off your list.

You can also put in a minimum volume filter, to filter stocks above a minimum desired volume, that will also help you get in and get out quickly while trading, without liquidity issues.

Incorrect entry: Without rationale.

For me, the stop loss position must be based on logical rationale.

You need to ask yourself; Why have I put the stop loss there? and your answer should have rationale.

When I say rationale, I refer to technical rationale, the structure of the market will give clues as to where the stop loss should be placed.

This alone will help improve the odds (perhaps only marginally) of your stop being hit i.e. is it below a tested and validated support level?

Some use a set % but this is arbitrary, it often holds zero technical rationale.

Mood: Too greedy or too fearful.

If you have been through a losing streak, or you have an immediate need to make money, there is a high chance that your emotions will take over your trading.

When that happens, you will disregard your own rules and take worthless trades or trade too heavy just to make money. Trading heavy whilst getting stopped out regularly can be disasterous.

When you do that, your dollar losses or profits tend to decide your course of action rather than the trading plan that you laid out.

The best way to overcome this is to get your life in order before getting into trading. Trading is best done with a clear mind, or, Trading In The Zone. You would do great only when you objectively follow rules in trading.

The final word

Getting stopped too often can wreak havoc financially and emotionally if you are trading size, trading too often, in the wrong market condition or with the wrong stocks.

In trading as in life, you have to take a couple of steps back to take the huge jump. Stopping and analyzing the reason for a losing streak are those backward steps and the ensuing trading profits will be your huge jump.

So, don’t beat yourself, understand and acknowledge the reasons, and focus on making things right. The results will follow.

But I end on this: You will never avoid being stopped out all the time, it is a part of trading and something you will need to come to terms with....... The best traders are right less than half the time.

My breakout strategy - 15 page rule book (PDF) is available for all members to use.

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1 Comment

When is a trade not a trade? I get the idea of the trend being your friend. But is there scope to switch or challenge a known, well understood system when the trend is going in a direction that isn't conducive to the system one is applying? Not sure whether I've made myself clear or not, but... Is there ever a point where we switch to an alternative system, especially when it comes to preserving gains made when the trend was going in the direction we expected? I know we can sit on cash and wait a while or two, and I'm a bit nervous of evoking the gods of never changing the system, but is it worth exploring? For example, a quick look at…

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