The bumper bowling effect of the stock market

Also, why I no longer use stop-losses in my trading

Something I love about trading the markets:

Every day feels like a brand new day.

I guess on the surface that’s a basic statement. But if you compare it with most of the other jobs out there, “working” in the market is almost always fresh & fun.

Well, I suppose losing money is never fun, but I’ve got ways to mitigate that.

Most of the time those losses are unrealized anyway.

Too many people forget that unrealized losses mean they aren’t real-ized.

I don’t know how they forget that, “unreal” is in the name.

But, I digress.

Let’s get back to the freshness of the market.

I’m a fan of order. I live my life in a very orderly way, waking up at relatively the same time in the morning, pouring over my fresh brew of coffee, reading my Bible while drinking said coffee, and getting into the main writing workflow.

Yes, there are a lot of variations throughout each day, but there’s a general order to it.

The markets are similar.

At any moment something new could happen.

Yet we have these parameters that surround the market. Sort of like bumber bowling — the ball can move around anywhere between the bumpers, but it’s still going to roll down to the pins.

On a high level, the markets open up at the same time and close at the same time.

Individually, general patterns play out basically the same (this is one reason so many traders follow things like chart setups, moving averages, and other technical indicators).

And yet, within those big parameters, we have all kinds of wild swings.

I mostly ignore those wild swings and no longer use stop-losses.

While they feel like a safety net for a trading account, they’re actually a big flag declaring to the trading world that there’s money to be made right here.

I can’t tell you how many times I’ve seen pricing action dip into a support level, bust through it (taking out a slew of stop losses) and then turnaround to make the move it looked like it was already gearing up to make.

The traders who get stopped out almost always justify it by saying, “well I had the right idea, I just got stopped a little early.”

So they either create bigger stop loss gaps in the future (an almost surefire way to lose more money faster) or they learn from the mistake and do what I now do:

No more ongoing stop-loss trades.

Of course, if there’s a trade I really want to exit and just accept the losses on (super rare for me because of my unique strategy) then I can always just close it out.

But as far as adding this automatic protection for my trades.

Nope.

Not necessary.

What I’d rather do is just keep making money from losing trades and be patient for its bullish move to play out.

... oh, wait ...

That’s exactly what I do right now.

If you’re interested in learning how I make money even from losing trades, it’s inside my strategy course. You can check out more about it here:

» Trading EmpIRA (strategy course + community) «

— Ricky Ketchum