Alrighty folks. This one was a big learning experience for me. Here is the back story… Yesterday, I had been waiting for the ‘fiscal cliff’ vote for about a month. Now it seems more like a ‘fecal cliff’. The congress of the United States needed to pass some type of budget before we all fell off this cliff and dive bombed into an abyss of utter destruction of this great land. Ok. Whatever. As it always is, politicians cant get it right but I thought that after they passed the bill, the markets would skyrocket and never stop.
There is an important word in the last sentence. I ‘thought’. I thought I knew what was going to happen like a fortune teller at the carnival. I was looking into my crystal ball and could not see a losing trade on this fiscal cliff vote. I did what any aspiring trader would do and widened my stop to give the market room to breath. My actual thought inside my head said this, “Heck, this is the British pound. It can move 400 pips in a day so my stop should be a little wider. It CAN NOT hit it. The markets are too strong right now.”
The exact moment I thought, the market gods swooped in and handed me my lunch. They wanted me to bend over and say, “Thank you master. May I have another butt kicking?”
You see, today I wake up and price has moved back to my original entry and some may say, ‘well if you didnt have a stop, you would still be in the trade.’ This is the same thoughts a long term losing trader makes. Yes it may have worked in this instance but over the long run, trading without a stop will kill an account.
So going back to the idea of moving my stop… Why did I violate my rules. the gbp/nzd should have a stop no greater than 40 pips. This is the absolute maximum. I moved it because I thought I knew what was going to happen. So here is a note to myself and to every other trader on the planet. YOU CAN NEVER KNOW WHAT WILL HAPPEN 5 MINUTES FROM NOW! No trader knows.
This is why we have systems and plans in place. Trading is a statistical game. If one thing happens, we do this. If another thing happens, we do that. Period. There should be no deviating from the plan as long as it is working.
If I had not moved my stop, my loss would have been 3 times smaller than what it is now. There is a huge difference in 30 pips, which is what my original stop was set at, and 116.5 pips which is on the books now.
From now on, I will try my best to keep all stops in place and if I want to move them, I will move them toward my entry price. Not away. If my 30-40 stop is hit, then fine. I stuck to my rules.