Respecting Stops

I think most of the time, when traders say they need to respect their stops, they're talking about the stops they place to control downside risk.

They'll set a stop, say, at $50, and if the stock comes down to $50.10, they then move that stock down to $49.85 or something, to give the position "more room." Then, some traders even add more...

I am, of course, familiar with that particular trading problem... I've been there. However, I'm having a slightly different problem with my stops lately.

Lately, when I'm in a winning position, instead of following the stock up with a stop, I cancel my stop and sell at market, only to watch the stock continue to move in my favor. I think this comes from my current "confidence crisis" because I'm so afraid the stock is going to reverse and take me out at a loss, that I sell and take whatever profits I have.

I know this is not unique.

I think that ultimately, it's a better problem to have than cancelling stops on the way down and not being able to accept losses, only to watch them mount. However, it may be equally frustrating.

I had a few cases today where I sold out of positions instead of respecting my stops... with longs in YGE, MLM and GWW. Had I simply respected my stops, I'd be green, instead of slightly down.

First, MLM. I showed good patience not getting involved directly at $115, because I suspected a hosejob. I bought at $115.21, when it emerged from the base. The position immediately looked good, because it got some volume right away. This was an HCPG watchlist stock, with the target as $116. I checked the daily and saw that back in February, it gapped down from $116.96 and so I thought if it had some mojo, that it could even fill that gap. So I placed a sell limit at $116.24 and watched to see what would happen.



At $116, it hit some turbulence... but really, in retrospect, very, very minor turbulence. Still, I was afraid the stock would reverse back to my entry, so I took my $60 gain instead of respecting my stop and my target. Perhaps I was so afraid to lose my gains because this trade basically brought me flat on the day... still, had I respected my target, I'd be up $28 on the day instead of down $14.

The next stock, GWW, was one from my watchlist. I was expecting a run to $89. Again, I bought at a very good time, and was not really in danger of losing money on the trade.



As you can see, the stock ran straight through $89, picking up volume along the way. It ran easily up to $89.50 before taking a breather and forming a tight base between $89.35 and $89.50.

I save the most heartbreaking for last. YGE was another HCPG play and a run to $24 was expected. While the stock jerked traders around early, it cleaned up nicely into the afternoon. I think the main problem I had with this particular trade was that it came in the middle of the day... a time I don't like to trade actively.



As you can see from the graph, I completely fucked up this gem. I kept buying higher and getting more and more nervous... Really annoying to look back at that and think about what could have been.

Meanwhile, I have him blogrolled, but if you want to see how a trader at the peak of his game handles some of these same trades, go check out Wall Street Warrior.

Anyway, today was a battle. But really, I only have myself to blame for losing money in KSU, a complete waste of a stock. I need to avoid losing money in shit like this...



Bottom line, if I can have more bad days like this, where I lose only $14, I'll be a happy trader. Despite my poor performance, I can take some positives out of today.

Here's the stats:

P&L, -$14
Best, YGE, $249
Worst, KSU, -$170

13,600 shares traded.
10 stocks traded, 5 winners, 5 losers.