- Trading without a stop loss: Trading without a stop loss is a recipe for disaster. It’s how small, manageable losses become devastating wipeouts. Trading without a stop loss is the same as saying, “I know I’m going to be right — it’s just a matter of time.” That may be so — but it may take a lot longer than your margin collateral can support.Using stop-loss orders is part of a well-conceived trading plan that has specific expectations based on your research and analysis. The stop loss is where your trade strategy is invalidated.
- Moving stop-loss orders: Moving your stop-loss order to avoid being stopped out is almost the same as trading without a stop loss in the first place. Worse, it reveals a lack of trading discipline and opens a slippery slope to major losses. If you don’t want to take a relatively small loss based on your original stop loss, why would you want to take an even larger loss after you’ve moved your stop? If you’re like most people, you won’t — and you’ll keep moving your stop to avoid taking an ever-larger loss until your margin runs out.
Move your stop loss only in the direction of a winning trade to lock in profits, and never move your stop in the direction of a losing position.
Be on the lookout for my next blog where I will reveal 2 more "beginner" trading mistakes!!
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