Now if trading was as simple as just buying new highs and holding we would all be billionaires relaxing on yachts sipping champagne. Trading can be simple if you have a consistent strategy and a game plan and actually execute on said game plan. That's how simple trading can be, however much easier said than done. Even as a professional trader, we are professionally wrong, meaning out of 100 trades, we are actually wrong more times than we are right. If you have a hard time swallowing that humble pie, the market will force that big ass spoon down your throat until you choke. This is why we use stops in every trade, I don't give a shit if xyz stock is going to cure cancer, turn your shit into gold and add a few inches below the waist, we still use a stop. If we’re right and the stock rips, the stop does not really matter, if you’re right good shit, we use stops in every trade because we know that one day we are going to be wrong and the stop removes the emotional aspect to a failing trade.
Say you got long VERI through $50 (one of our members did) and it looks sick, just ripping higher day after day. All good signs except for the fact this member did not have a goddamn stop in!
Ben G “What's your stop Florin?”
Florin “Stop? Thing’s going to $100 yahoooooo!”
After a few expletives that I will spare you here, we told him he had had to put a stop in, however the young brash trader has to learn this lesson the hard way, no matter how many times we tell him “don't touch the fucking hot stove”.
Doesn't look like it's going to $100 anymore now does it? Now during the convo above, the stock was flagging at $72 in the tightest flag known to man on a stock that just increased by 1000% in less than a month (usually a bad fucking sign). Now seeing this tight ass flag, we could not have spelled it out more clearly to put a stop below the figure. If the stock wants to keep raging in a straight line up he would still be in, however when the tide turns, he would be out before he could make an emotionally bad decision. Let's take a closer look.
Mind you this is a fucking 15 minute chart, not a daily or a weekly, in 30 minutes this thing dropped 36% in half an hour. We told him to put his stop at $71.89, however the cocky member flying high on his huge winner, could do no wrong. Until Mr Market whipped out his big fat c#$%, he had no plan for when he was wrong and froze up as most new traders do as a stock is dropping like a rock. He eventually capitulated and puked near the bottom. After this trade in question, we removed Florin from our Alpha chat because we have no time for that cowboy shit. We have been running the Alpha chat for 2+ years and have had zero members blow up under our watch and Florin did not deserve to affect our group with his cowboy antics.
(Click on the chart for a bigger version)
This stock as most stocks who trade in this similar fashion can rarely sustain this type of move, just like Bitcoin to $19,000. At the peak people were saying they would eat their own dick if it didn't go to $100,000, now that it has crashed by over 50% in a month, those claims are no longer said other than from a whisper.
Braggarts tell you of their great success (luck) yet they are the most quiet on the way down.
This is why we use stops, because as a trader you are your own worst enemy. That’s the cold, hard truth, you are the one clicking the buttons either making or losing yourself money. This one trade for Florin was a huge winner than turned into a loser (horrible trading) and had he not puked it could have been a trade that cost him 50% of his bankroll (horrible risk management). This is why we aim to risk around 1-3% in each of our ideas, and we aim to make 5-15%+ in our winners. We can still have 20, 30, 40, 50, 60, 70, even 100%+ winners with the same risk. Which we will go over in detail in the Risk Elastic lesson later on.
Now there are some downsides to using a Stop that you will see first hand. There will be times when you get shaken out, meaning your stop was too tight and the stock rips in your face and you will be cursing at yourself like “why the fuck did I keep it so tight?!” It’s all part of the game because for every one of those shake outs, there are a dozen other failed trades that you forget that you lost 1% in, that died over the next few months and could have cost you an arm and a leg.
