What Do You Do When You Hit Your Loss Limit?
April 26, 2012 at 8:15 am
Over the past 10 days, there have been two occasions where I hit my daily loss limit. Sounds like a tough stretch, but on a net basis it’s actually been positive thanks to some other good days.
Mind you, I’m generally a disciplined trader, and in a dozen years of full-time trading I have broken my discipline countless times but have never truly gone on tilt where it’s account life or death.
That said, I do not have a broker-set cutoff. That’s where you specify a dollar amount, which when hit will lock you out of making more trades. It’s still your account and you could call in and override that I suppose, but it’s at the very least a break in the action for you, and a very good thing for some people – namely, developing traders.
Back to my point and the title of this post, what happens when you hit your daily loss limit?
For me, it’s a general dollar amount where I start to understand that barring some really great trades, and with the amount of risk I am willing to take, I’m unlikely to recover. It’s a matter of recognizing that I’m likely to do more harm than good – either to my account or my confidence.
At times, I’ll hit that level and I just need to admit defeat, shut it down, and come back another day. I might leave my platform open and monitor the market or open positions, but I know I don’t need to press any more buttons. Adhering to that has on many occasions prevented deeper wounds to my account.
Knowing when to walk is found in two things: one internal, one external. Internally, you must understand yourself and your tendencies. Externally, you must be able to recognize current conditions and determine if there’s good reason to continue or not.
Over the past week, however, I had two different outcomes when I chose to trade beyond that mental cutoff.
Exhibit ‘A’
The first was a day where my limit had been reached, but I allowed my emotions to interfere. This was the internal element, and I was in no shape to continue. (That, by the way, also prompted this week’s video.)
I didn’t go on tilt, but I lowered my standards in what was ultimately a mild version of revenge trading. That never pays off, and in this case it cost me a little more. As it should have. I hit my loss limit plus another 1/4, which isn’t a ton but it is too much.
The mistake was that I continued to trade because of my P&L. Catch that? Because of it, not in spite of it.
Exhibit ‘B’
The second occasion was similar in that I reached my mental cutoff, but it was different because it was a day where my emotions were settled.
I continued to trade not out of anger or frustration or ego to prove I was right, but because there were multiple stocks in play which warranted my participation. Conditions were very favorable for making good trades, so I continued.
I was accepting risk beyond a normal cutoff amount, but it was with a level head and with some real potential to turn the day around. And I did. It was rewarding, not in the sense of “I told you so” but simply because I kept taking good trades when they surfaced, added it up in the end, and came out slightly ahead.
It’s nice to dig out a bad day, even if it means you barely do better than break even.
On some days, those are wins.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Ron Artest, Scrabble & Trading – WTBR Episode 4
April 24, 2012 at 8:40 am
Today, I bring you Episode 4 of When The Bell Rings.
In this episode, we’re talking about something that’s paramount to your success as a trader. It’s a mindset, but it’s something that requires intentional planning and not a fly by the seat of your pants mentality.
A weekend sporting event was too pressing to delay this message any further, so here it is.
I hope you get a lot out of this installment. Keep coming back for more in the days ahead, and of course if you find these helpful, then let me know!
Run time is 4:26.
(Direct video link is here for those interested in embedding it elsewhere to share).
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Video Review of the Indexes 4-22-2012
April 22, 2012 at 9:08 am
Last week the indexes finished mixed with the NAZ ending in the red (largely thanks to AAPL) while the others gained some ground. All in all, it was another range-bound week with momentum fleeting as traders instead fixated on individual stocks following earnings reports.
In preparation for the trading week ahead, let’s examine some important levels to keep an eye on for the indexes. That will have the greatest influence on how individual stocks are going to move, so it’s part of our weekend process.
Selectivity remains the key for new plays, which I’ve been noting within the member area.
(Direct video link is here for those interested in embedding it elsewhere to share).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Week 16 Trades Review (Video)
April 20, 2012 at 10:05 pm
Week 16 is in the books, and truth be told, I would have been better served to have sat on my hands!
I wanted to offer a video recap of the trades I took. As you’ll see, I was stopped out several times on head-fake types of entries with stocks showing extremely limited follow through in either direction.
On weeks like this, it’s nice to be limiting risk. Each of us will encounter stretches where failed trades happen more often, and this was that week for me. I found a few winners, but the key for me was limiting my losses in order to maintain my objectivity and minimize the damage. This is where setting ego aside can truly save you in your trading, as backing away with smaller size on messy weeks will leave you digging shallower holes by digging with a smaller shovel!
This show-and-tell look at the trades I took this week should give you a feel for not only how I managed my trades, but also the kinds of setups which have been working well of late. And for those curious about our trading style in the member area, this should give you a good indication of what a typical week looks like. Check out the trial if you’re interested in adding our ideas to your own.
(Direct video link is here for those interested in embedding it elsewhere to share).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Gap Strategy on Swing Trades
April 19, 2012 at 9:01 am
A Bandit subscriber recently asked me about dealing with gaps on swing trades. This was a great question, so I wanted to be sure to share this exchange with you in hopes of you adding your thoughts on this as well.
Background on the Situation:
This question came in reference to a swing trade I had listed Sunday night inside our member area. MGA had fallen below an ascending triangle pattern the previous week and bounced back up to test the breakdown area only to stall out. This appeared to be a potential short-term lower high (and failing bounce), so I listed it as a short sale heading into Monday’s session if it broke the rising trend line at $45.20 (see chart).
This was to be a swing trade, which is an overnight position – at least until target or stop levels had been hit. My swing trading strategy allows for some gapping beyond my intended entries, but then I scale back my size the further a stock gaps. This helps offset the added risk with a wider discrepancy between my actual entry and my initial stop loss.
In the case of MGA, it gapped 2.8%, warranting only a partial position of 1/4 size. The gap was filled quickly, and I ultimately stopped out Tuesday as the bounce continued, taking a loss on this very small position. Nonetheless, that’s the setting here under which this trader asks the following questions.
Question:
Jeff, most of the time when I set up my bracket orders for swing trades my initial trigger to open a position is a stop limit order. I use the limit order portion when I am working during the day and cannot actively adjust for gaps, as this way I don’t by default enter the trade in less than ideal conditions. In the case of MGA which had the immediate pullback, I was in moments after the opening. So my question is in general trades like MGA that return back to the original trigger levels should I let the trade continue or would I be better off passing on the trade?
Thanks
Answer:
Great question. I take it from your question you have mobile access or some way to get in and make an adjustment to the trade once you’re in. Some brokers offer several levels of sophistication with regard to managing orders like this, but if you are not inclined to complicate things then I’d say on trades like this just pass on it. The best trades for me tend to not come back to the trigger or go against me right off the bat. That is more characteristic of the losing trades I make.
I’d say to keep things simple, if the stock gaps beyond a certain amount you specify, then just skip it, or next-best scenario would be to just close out the position as soon as you notice you were filled. Either you got a price you didn’t like or you have more shares at that price than you want, but the point is you recognize it’s not the trade you had intended to take. Closing these out may mean a small gain or loss, but I suspect those will wash out over time and overall you’re sticking with an overall gap strategy which is suitable for your unique needs.
How do you manage gaps on entries when you’re away from your screens?
What would you tell this trader?
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Be Present – When The Bell Rings 3
April 18, 2012 at 8:48 am
Today, I bring you Episode 3 of When The Bell Rings.
In this episode, we’re talking about a common mistake among traders which seems so obvious – yet so few make it a point to avoid.
I hope you get a lot out of this installment. Keep coming back for more in the days ahead, and of course if you find these helpful, then let me know!
Run time is 4:07.
(Direct video link is here for those interested in embedding it elsewhere to share).
By the way, here are links to Episode 1 and Episode 2 in case you missed them.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
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Video Review of the Indexes 4-15-2012
April 15, 2012 at 9:00 am
Last week the indexes shed a couple percent (give or take). Despite the early dip getting bought, the week ended on a sour note as higher prices were again used for raising cash.
In preparation for the trading week ahead, let’s examine some important levels to keep an eye on for the indexes. That will have the greatest influence on how individual stocks are going to move, so it’s part of our weekend process.
Selectivity remains the key for new plays, which I’ve been noting within the member area.
(Direct video link is here for those interested in embedding it elsewhere to share).
Be sure to view in HD (720P) and full-screen mode for best quality in the video.
Trade Like a Bandit!
Jeff White
Producer of The Bandit Broadcast
Get our free newsletter to keep up!
Follow @TheStockBandit
