JimsShed
Junior Member
Posts: 11
Registered: 4-2-2005
Location: Brisbane
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posted on 25-2-2005 at 09:27 AM
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Difficulty taking stop losses
Okay I'm going admit it, "I find it hard to act on stop losses". I know I'm not the only one.
Many possible reasons ...I'm comfortably ahead this year anyway...the companies are fundamentally sound with good prospects...the price decline
defies common sense (this is a common thought). I've pondered on this for some time now.
Anyway, I know I've got a problem that could bite me hard if the market turned nasty. For those of you that have been here but overcame it , please
share your thoughts on how you did it.
Cheers, Jim
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John Atkinson
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Posts: 185
Registered: 14-10-2004
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posted on 25-2-2005 at 10:57 AM
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Hi Jim
In Daryl's first book Share Trading he uses the analogy for wannabe traders of learning to put down notes on the footpath and have
someone pick them up & walk away with your money
During the tech stock run traders worldwide felt they were invincible as stocks soared at an incredibly fast pace
During those times we found it easy to sell out at losses when you were making up for it on other profitable trades
Then one week the party was over - and all of a sudden its not any fun anymore as you see red on any screen you look at - and no more green up
days
First of all regret hits you - wishing you hadn't listened to that broker who told you to hold - regret you hadn't got out sooner - regret you
hadn't acted on your stop (if you set one in the first place) or not bought such a large position or too many positions or had actually taken the
time to get some education on technical analysis, psychology and risk management in the first place
This then moves to hope - the BHP approach - Buy Hope and Pray - you find yourself looking at the charts or screen hoping the share will turn around -
believe me the share can't hear you - it doesn't care about you or your hope - it always did and always will respond to supply & demand and if
no-one wants it , it's headed South
Then fear really hits - gut wrenching fear as you see your capital decimated - 20 years of working multiple jobs to get ahead & most of it all
gone in months ....... sleepless nights for weeks then months .......And you still have to try & function at work by day when you've been pacing
the house night after night - your mind goes , your memory goes, your reasoning goes - and our waterfront home went.
And all of that can be traced back months previously to a series of small decisions that evolve around getting the right education and developing
discipline for correct position sizing, capital allocation, setting your initial stop, moving up trailing stops and exiting your stops when they're
triggered
Hope this helps you in what you consider now to be a dilemma. I also hope this helps you decide whether trading is actually for you or not and please
realise it's okay to say no and seek your fortune in other endeavours , in which case we applaud you for your decision.
I mean this with sincere conviction - trading is not for everyone and sorry to be appearing tough on you but acting on stops is tough - and the
alternative is much tougher, believe me.
Cheers
John Atkinson
www.sharetradingeducation.com
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Jason
Junior Member
Posts: 89
Registered: 9-9-2004
Location: www.startraderreport.com
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posted on 25-2-2005 at 01:51 PM
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Hi Jim,
Well done on being honest. I think as you say many people do have trouble acting on stops.
I would like to tell you there is a nice simple way but I think for many people it takes losing money. It did for me anyway. This is because of our
beliefs.
I noticed in your post you wrote
"the companies are fundamentally sound with good prospects...the price decline defies common sense (this is a common thought)"
I am assuming these are your thought processes. Thought processes are generally underpinned by our beliefs. I have no trouble acting on stop losses
becasue I have lost money in the past not doing it. My belief is that working on fundamentals and common sense loses me money while acting on stops
helps make me money. Your belief however may be that the fundamental opinion of a company is meaningful and that price will come back.
I am not saying you are wrong and the others are right. Every body has a different way of trading. Many fundamental analysts have no time for
technical views - if they make it work that is fine.
I believe using technical analysis is a numbers game. Minimise losses and put the balance of probability on your side. In order to do this stops are
generally needed.
Changing beliefs for the most part (I think) comes from our experiences. For example I love dogs but if I got mawled tommorrow by a pit bull I may be
less caring next time I see one runnning across the road...
Maybe this answer is not what you are looking for but while ever someone is trying to adhere to another person's belief when it doesn't seem right
to them, there will always be trouble maintaining discipline.
The only suggestion I can make is extensive research on your approach. Seeing factual results can be hard to deny especially when there is a repeated
pattern that becomes visible. This could be done through back testing but this is more difficult with fundamental and technical combined.
Hope this helps in some small way. I admire your honesty.
Good luck, I hope all continues to go well for you...
Jason
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DarylGuppy
Posting Freak
Posts: 1176
Registered: 24-8-2004
Location: Author Share Trading, Trend Trading, Better Stock
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posted on 25-2-2005 at 09:49 PM
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Consistently exercising stop loss discipline is the greatest challenge and barrier to succesful long term trading. Our desire to avoid experiencing
the pain of losing is hardwired.
Once you have created a discipline to take a series of losses you tend to find that another set of inhibiting factirs start to creep in. At first they
are special cases, Later they become the 'normal' reason for not acting a stop losses and the losses grow.
I do not think there is a single, or simple, solution. The solutions we use to force ourselves to act on stops change over time. We need to be alert
for the need to change and the more we can read about the different ways that others resolve this problem, then the better the chance we give
ourselves of finding a solution that will work for us.
The foundation is accurate trade planning and good records showing who a trade failed. Look for the patterns as Jason suggests, and then develop
strategies to block the losing behaviours. This may eman no taking partucular types of trades because they always 'blow up.'
Cheers
Daryl
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JimsShed
Junior Member
Posts: 11
Registered: 4-2-2005
Location: Brisbane
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posted on 26-2-2005 at 03:45 AM
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Jason, John, and Daryl. Thanks all for your response.
I've already read them several times knowing that your words come from the heart and experience.
John, my wife read yours before me and said "Oh this is sad". We both paused for thought after that one. It was an outpouring that we need to
re-read often I think.
Jason: Beliefs. If we're looking for my reason I reckon you hit the nail on the head. I've been a computer programmer for 18 years...with a business
degree...good companies are the fundamentally sound ones and logic is my mindset. So my current beliefs are that anyone who sells downs a great
company must be crazy, surely the sensible people will see through this  .
Alas not always how it happens as you know.
My programmer background means I'm naturally drawn to trading. I don't think I can leave it alone. I'm totally off fund managers (another story) so
I won't be going back there, in fact I see exiting all funds I used to be in as my greatest stop loss triumph to date. In this my first active
trading year, I am well ahead of anything they ever did for me.
But clearly I've got to work on my trading beliefs. Let some go. Take up new ones. Daryl's comment about special cases becoming 'normal'; Boy upon
reflection I can cite one in particular. I had BSL which initially went down, too far, then it came back, and we actually made money. I feel this
trade appeased my beliefs, from which I have suffered anguish since as others didn't behave the same.
Anyway, my time must be up. Better get off the psyche couch.
Thanks, Jim
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