I read on a bulletin board a traders comment that on his initial outing trading the E-Mini S&#038P 500 he misplaced on each of his trades. He noted though, that had he had a wider stop each of his trades would have been profitable and that therefore he would be trading with a wider stop in future.

A wider stop on these specific trades may have worked, but this does not mean that a wider stop per se is the answer. In reality, everyday there is the possibility of any given trade going into profit if given sufficient space, but that does not a smart technique make. This trader was a seller in a market that subsequently went down hence he could see that had he given his position a bit more space he would have produced a handsome profit. Unless of course this trader has the capability to usually accurately predict the direction of the market he is going to encounter days exactly where he is wrong and the market goes in opposition to him, in which situation his potential for loss with wider stops is greater.

When determining an appropriate amount to risk on any trade (i.e. size of stop) a trader has to think about more than the potential profit on a specific trade on a specific day. What this trader was saying to himself was ‘If I had a three point stop instead of a 1 point stop, I could have produced 15 points therefore I will usually use a three point stop!’ Partly what he was saying to himself was ‘I was right!’ But he was not right in the time frame of his trades and inside the risk limit of these trades he was wrong, his timing was off and that is what he needs to function on.

He is also generating two assumptions:

1) That getting a larger stop and therefore larger open losses will not impact his trading composure and performance (how do you really feel if you are risking $10?? $one hundred?? $1000?? $10,000?)

two) That he would have held on to his profitable trade till he gets an exit signal (it is easy to presume following the occasion that we would have got out at the really best moment)

The truth is we are all much weaker than we would like to presume. The greatest challenge to profitable trading is sticking to our own self-imposed loss limits, be they on a per-day or a per-trade basis. What this trader did on this day was stick to his limits, which is highly commendable he was just getting problems accepting his outcomes. No one likes losing money and no one like being wrong, but to be effective in trading we have to be accepting of each.

Malcolm Robinson
LIFFE Pit Trader &#038 Electronic Trader
InstinctiveTrader.com