I’ve only been writing here a few weeks, but this isn’t the first--and won’t be the last--time I mention the importance of setting stops and sticking to them. This surely isn’t a novel concept and is highlighted in any good 'Trading 101' book or program. If you always abide by your stops, I applaud you, and you're probably well on your way to being profitable. But I know some beginners read this blog, so I'm going to add my voice (and today's example) to the many telling you why stopping out is such a critical component of successful trading.
As I have reported, before today I had been holding FTS.to short and HSD.to, a 2x short ETF of the SPY, long. They were working well for me, and I had set what I hoped were reasonable targets. However, I never enter a trade without knowing not only where I want to exit (my target), but also where I need to exit if things go bad (my stop). Pre-market today, it was clear that these were going to hit my stop out levels. So I set my order, and when they were triggered almost immediately at the open, I wasn't overjoyed. But I also hadn't lost money, so I wasn't unhappy, stressed, or in the hole.
Given the rally today, I am quite happy to be out of these shorts. Would I have liked to make money on those positions? Obviously--you hope to profit on every trade. But that's not possible. The next best thing is to never lose money.
It's especially tempting to hold on to positions now that I am blogging - trades that go against me are now public. But that is all the more reason to show that I stick to my rules. So if you are a beginner, this one post may not make you to abide by your stops, but I hope it helps you on your journey. I'm not perfect, and I'm well aware of wanting to hold on to that position just one more day to give it a chance to turn around. I know when I first started trading I always had good intentions but didn't necessarily know how to follow through on them, and of course I'm human so I still make mistakes. So I will try periodically try to come back to this topic, because it's something that even experienced traders like myself can't hear too often.