Keep getting stopped out?

I’ve seen it time and time again Brokers saying that the public are often right on trades but their timing is wrong.

This often results in a trader/Investor taking a position, setting a stop-loss, the market triggers the stop-loss and then moves in the direction the trader/Investor originally planned.

At that stage you should have 2 things going on:

1) You’d be stopped out, taken a XR loss and you’d replace the original trade order with another order to re-enter as per order number 1 or

2) You’d be stopped out, taken a XR loss and because it failed on the 1st attempt you’d not bother re-entering the market – at this stage you can be sure the market will move without you!  We’ve all been there.

I’ve been stopped out 5 times before on one trade before the market confirmed my thinking, I’ve also been stopped out 5 times and the market has not confirmed my thinking – it happens.

The way to overcome this is by taking trade number 1, once only for the same level of £/$ Risk – the only way to do that is by using OPTIONS.

By using OPTIONS you are giving yourself breathing space, Let’s look at an example:

You have a set-up that is telling you to go Long the market, for simplicity let’s presume that’s a buy price of 100, you normally have a 1% stop-loss position and you’re expecting price to make 5% based on your set-up – that’s a 5R potential profit on the share price.  You have a trading/Investment account of £50,000 and are happy to lose £500 on this trade which also happens to be 1% of the value of your trading account.  So to risk £500 you expect to make (based on your trading set-up expectations) £2,500 – this is a very healthy return and perfectly acceptable, but…….

How do you know this will work on the 1st attempt?  You don’t – it is impossible to know that – you could be stopped out 3 times costing you £1,500 and it might work on the 4th attempt making you a net profit of £1,000 – still worth it though!

So you could potentially have the hassle of looking at this trade a number of times, setting alarms, orders and the like which no matter how good you are affect your mental state – the reason for this is simple – because no-body knows for certain what the markets will definitely do every time you get stopped out the doubt enters your mind and it’s the doubt that helps to wipe people out of business.

It is also perfectly possible that this will work on the 1st attempt – I recently had a position on the EURUSD that worked on the 1st attempt and made me 10R profit – that was a home run and they don’t happen often.

I like a simple easy hassle free life as much as possible, by using an Option you could still risk £500 buy buying a CALL option – If you are wrong you lose £500, if the market bounces around and then fails to move then you lose £500 once – not multiple entries etc, If the market moves around that would have resulted in multiple entries by buying the market and placing a stop-loss then you’ve saved yourself multiple losses.

Now options can also be fairly complicated if trying numerous strategies – I’m not getting into those, but to keep things very easy using options, maintaining the same £/$ amount of risk can save you mental torture and numerous losses.

Obviously you have to make sure you buy the right option, strike price and expiration date.

For some of my style of set-ups I do pretty well by buying out of the money calls/puts with 3 months expiration and once bought the hassle of being constantly stopped out although ultimately right on market direction is removed as much as possible.  And also you might occasionally get lucky and an option seemingly expected to expire worthless might receive a sudden burst of life reducing the initial expected loss!

Best of all worlds in my book.

An advanced technique you could use is – When I take a position I expect to get stopped out at least twice, so in the example above you could risk £1,000 for a once only position rather than just £500 – this will massively increase your returns over time.

In the UK you CAN spreadbet options too