This post is an extension from the previous post.
2) Stops - you must have hard stops. Stops that will get you out of a trade quickly. Recently I had the great idea that I was tired of being stopped out continuously and that I would trade without stops. It works great for a while. However, let me tell you the cycle that occurs. First, you start trading taking profits every 10, 20, 50 pips, whatever. All is well. You make 5, 10 percent profit for a month and possibly another month or another. Life is great. You will be rich in no time. Well, then it happens, you have positions loaded up and the market has a major move and there goes 10, 20, 30, 40 percent of your account. Months of profit have disappeared. Of course, you don't close your trades. So days go by, then a week or two, thinking the market will come back and all will be good. All this time the market moves against you. Not only are you losing money. The more important thing is all this time went by with no profits and now you have a lot of opportunity costs, gone! A lot of traders don't think about that. That is probably the bigger issue. the opportunity costs. Those days or weeks that you had the market go against you, you were not able to make any more trades because you were paralyzed by your loses.
I realize that some trades will be stopped out by a pip or two. It happens all the time to me. Funny things is, I get some take profits by a pip or two too. Many traders forget about the later. They instead complain about the one hit by one pip. I will always use stops which will cause me to get out of trades quickly. I can then move onto a new trade with a clear mind.
To be continued....
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