8-Letter Word That Will Help You Obey Stops

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8-Letter Word That Will Help You Obey Stops

Let’s talk about stop losses, and how to obey them so your don’t blow you hard-earned money…

When one door closes, another one opens.

That’s how optimists think.

Take yesterday’s market action for example.

In The Exponential Growth Report (which trades 10 stocks every month), we got stopped out of GPRE, as it failed to revert to the mean, and headed lower after buying.

Yet as soon as I checked quotes at the end of the day, I saw that another trade, STX, had exploded 17% higher in afterhours trading (they beat earnings, which is a lovely byproduct of buying stocks that are going up in price).

One door closed, and another opened indeed.

But we still had to prune GPRE from the portfolio.

“Selling out.” “Taking a loss.” “Axing your position.” Those phrases conjure images of defeat. Your emotional monkey brain doesn’t like that, and will prevent you from doing the logical thing.

So let’s be optimistic and reframe obeying your stop loss into a positive.

You’re not selling. You’re R-O-T-A-T-I-N-G into a new trade that is more likely to make you money.

Man, I wish someone taught me this simple trick when I started trading 20 years ago.

In my first year of trading, I would foolishly let my option trades go to zero. “It’ll come back,” I would say to myself.

Meanwhile, my tiny trading account was dwindling to nothing. For amateur traders, options are just a faster way to separate you from your money.

Even stocks go to zero.

Back in 2014, we had a trade on GTAT. They were in a great exponential industry. They supplied glass for iPhones, but Apple killed the deal.

A month before that happened, we were stopped out of GTAT, so we ROTATED into another position that was more likely to make use money (and it did).

Meanwhile, GTAT kept falling and falling. Then the news broke out.

I saw the same thing happen to Enron. Fundamentals looked rosy, but price is always king.

News of rampant fraud came out AFTER Enron’s stock had cratered. Price leads fundamentals most of the time.

Most of the time, a stock will rebound after hitting its stop loss, which can be frustrating if you’re new to the game (it gets much easier over time).

But all it takes is one “death drop” stock to smash apart months of profits.

So rotate your way to riches, or sooner or later, the market will rotate your nest egg into the jaws of the sharks on Wall Street.

Note: Trading when you're stressed out is a recipe for disastrous mistakes such as failing to obey stops. Take this test to find out your stress score.

You'll also discover what the top most stressful events are. I figured moving would be much higher on the list. #1 was pretty obvious.

 

Trade smart,

Dan “Prince of Proof” Murphy