A stop loss that fights back!

One of the real reasons behind our hesitation to trigger stop loss is the pain we have to bear in booking the loss.

Result?

We let our account bleed...

You don't need any other weakness to seal your fate in trading if you have this one.

Is there any solution to this which works?

For any solution to work it has to satisfy two conditions -

1) it has to be simple yet effective

2) it should have potential to recover the loss

If the trader in losing position sees the way to recover the loss, his focus will shift from the pain of booking loss to the hope of recovering the loss.

That way his fingers will be much lighter in clicking the stop loss button.

Before we find out such a method, let us have a close look at what we do after we book loss?

We feel a lump in our throat,

our blood pressure is low,

our mood is bad,

we are frustrated.....

We shut down the computer

and go out of the room!!!

That, dear friends, is the key mistake.

We treat booking loss as full and final.

We come out of the room

the stock retrieves

but we are not there!!!

Herein lies the solution.

When the stop loss is hit

honour it BUT

don't turn off the computer

don't leave....

just stay there!

The fightback opportunity comes just after booking the loss!!!

Cordon-off the area into a zone.

Mark 2 lines, one above the stop loss, one below the stop loss

(how much above or below - you decide as per your judgement; generally it should be a support and resistance level)

if the price rises above the upper line, go long

if the price falls below the lower line, go short

the entry point acts as a strict stop loss again.

and mind you, this street fight doesn't end with the day

carry it forward to the next day if required!

This way your stop loss becomes a temporary booking of the loss.

You not only ensure that you STOP any further loss

you ensure that you have a fair chance of recovering the loss (and who knows - a respectable profit)!