Daily stop loss/profit targets

[Sparrow]

Hi,

I thought of sharing this article with the community, it's about calling it quits if you hit your daily stop loss targets and not try to get back your losses.
This can protect you from steep set backs.

Cheers

[MrPaul]

Sparrow,

Thanks for the article, it was refreshing!

I can certainly relate to this passage...

"If you have been day trading more than a few weeks, I am sure you have experienced that one, terrible day where you look back and ask yourself, “Why didn’t I stop trading after I was down X amount of dollars?� or “I cannot believe I made $500 each day the last three days only to lose $2,500 today because I could not walk away.�

I can remember one week I was up about $4,600 by Friday afternoon on the week. By the time the closing bell rang I closed the week out down nearly $5,000 (total losses near 10,000)! That was the single worst day I have ever had trading. I was really undisciplined and arrogant back then

It's all a trial by fire though. Some people just get burned more than others on the way to the top!

[BlowFish]

Been there MrPaul - I guess all but those that start out incredibly disciplined have. I think the emotional damage is probably more severe than the financial damage.

On the other side side sometimes a coupled of early losses can sort of harden your resolve and you actually really knuckle down and trade well.

I guess the key thing is to follow your plan. If you can do that after setbacks (or successes) maybe you don't need the safety valve. If you are prone to going 'off piste' then perhaps limits are good. Pretty much an individual thing.

[Sparrow]

Imo it's not only about having troubles with discipline, sometimes the market might act a lot different to what you are used to and your setups fail.
Just having a bad day can be a reason for draw downs for a successful trader.
Blowing more than 10% of your capital e.g. on one day is really a waste, better get back to the drawing board earlier or just stay on the sidelines.

[Er2Junkie]

the main problem is that you have to force yourself to see the longrun picture. Even if you stick to every rule you will still face loosing streaks. What really helps me focus is just look at screenshots of good trades I made over and over again. Positiv attitude is half the game.

That said I still haven't been able to walk away once I am having a bad day, but I refocus quite fast and my max drawdown has never been out of control.

[torero]

It's hard to see tomorrow as a bright future when you're down and want to see it your drawndown reversed. But it's inevitable, the emotional state is already disturbed and contaminated. Any more of those will get the drawdown spiral down even more. Get out while the getting is good. I have those days, I usually fool myself by saying the market is not right today so it gives me a reason to stop trading the rest of the day. But if I convince myself that it's me that needs to do right, that's when that convincing will get me back in and do more harm.

[Hlm]

Not sure if this concept has been discussed already but here is a thought:

Treat your daily stop no different than you treat your trading stop. It is kind of like trading off your PnL. Trail the stop as the day moves on and your PnL goes up (hopefully).

For Example...

When I start trading I have a daily stop that is determined by both how much I can make in a day and the type of market condition I expect. In general I do not like to lose more than I can make back the next day. As the day moves on I will move my stop up depending on what the market condition actually is and how well I am doing. During lunch times I usually have another stop above my daily stop. This allows me room to play the lunchtime (if I want to) without getting whipped out for the day in slow volume times. For example, many of you in the chat room saw me hit my lunchtime stop a few days ago. As for targets, I can’t really say I have any (personal choice).

Of course this may work for some of you and not for others. It also depends on how well you are at trailing stops. However, I do feel that it is VERY important to have a daily stop that you can make up quickly. Every trader has a bad day. Yes, some days you would have made it all back and more if you kept trading. But I assure you, there are many more where you would have been wiped out.

[torero]

Sounds like a great approach. Why haven't thought of that. I would certainly look into this one. To be honest, I haven't come across many books or seminars talking about money management on a daily basis, but this is certain a nugget to take from. Thanks hlm!

[angelaktariel]

Great article indeed. I am too new, so haven't had a chance to make too many mistakes, but these kind of articles certainly help me get the right discipline, or at least know what I should be shooting for as far as the type of discipline I need to have to make and keep the profits I earn. By nature I am not a gambler (don't like to loose my hard earned money), so I am learning how to make profit and when to get out, whether by making enough profit by what I set out for myself, or with the right stop loss, in case a trade decision has gone wrong.

Thanks!!!

Eva

[Pastora]

Thanks for the info!
Pastora