If you’ve ever been stopped out – you need to read this

There’s been much excitement at Trader’s Bulletin Towers this week, with the launch of MRP Strategy yesterday, which wasn’t helped by our technical support software in the US going down, and a more low-tech problem close to home (the puppy chewed through the broadband cable!)

For those of you who were put through worry about getting hold of the system because of these hiccups – I apologize.

But more on that in a moment.

First I’d like to take a look at an issue that this trading strategy has highlighted for me ….

Stop losses … ahh, those wonders of the trading world, designed to let us sleep peacefully in our beds, while the markets run amok in our absence.

What would we do without them?

Well, probably we’d be counting our racehorses … or playing golf with our Faberge eggs …

I’m afraid the truth is that peaceful night’s sleep you get is in fact extremely expensive.

Stop losses hurt, not help, your performance.

No doubt you know the situation I’m talking about … Let’s say you’ve bought the US Dollar, you’ve got your profit target 15 pips away and your stop loss 10 pips below your entry.

What does the price do?

It drops by 10 pips, knocks out your stop loss, and then shoots up through your profit target.

You’re left sitting on a loss, yet you can’t help feeling that on some level you were “right” about your trade.

It’s cold comfort.

If you’d widened your stop – your trade would have won.

But just how wide can you afford to have your stop loss?

Author and trader Larry Connors ran a trial to show the effect of stop losses on performance in a trend following strategy over a decade, and the results were pretty conclusive …

Clearly from this chart, using no stop loss was preferable to any other level from a 3% stop to a 50% stop.

But, we really shouldn’t be too surprised by this.

Markets do normally turn around (in the end). The problem is that most of us don’t have pockets deep enough or nerves strong enough to wait for that to happen.

So, what do we do.

Stomach the pain of stop losses?

Widen our stop losses? But how much can you afford to lose if you get it wrong?

It’s a dilemma that I’ve fought with for years. And, finally, it seems that I’ve found a way to completely side-step this whole issue.

It’s like discovering that I’d been asking the wrong question all along!

Which brings me neatly to the two reasons I wanted to talk about stops today.

1. Market volatility has picked up in the last week or so, which means that I’ve almost been able to hear the groaning sound as traders get stopped out with every surge on the chart.

2. Martin Carter’s MRP Strategy covers exactly this issue – or, more accurately, shows you how this whole dilemma is a fabrication that can be completely avoided. While Martin doesn’t go so far as to use the word “conspiracy”, he’s certainly got some firm ideas about what spread-bet firms want you to do with your stop losses – and what you should do.

Whether you’re in the market for a new trading strategy or not, I think you’ll find his revelations about brokers and stop losses very interesting.

He’s certainly had a profound effect on our beta testers. You can see the bulk of their feedback on the MRP Review page, but I think these two comments highlight the “Road to Damascus” effect that Martin’s revelations had on them …

“Put away your doubts & apprehension. Forget what you think you know. Open you minds to new ideas & give this trading a go! The stats speak for themselves – 26 trades & only 2 losses giving 92% success rate. Haven’t seen that anywhere else. Just stick to the strategy, don’t get greedy & this will work.” Tim Smith

“MRP is without doubt the most fluid, the most powerful and the most incredibly subtle strategy I have ever ever seen for capturing profits in the stock markets period. Whoever you are reading this, I like you, have studied books, charts, seminars and online courses over many years to increase my knowledge and education all to the effect of making regular profits with of course many losses along the way. I have been transformed. Why? Well because I have placed 12 trades without referring to ANYTHING from the list above and amazingly all 12 trades were in profit! How can I describe the feeling to you that you dont even have to “glance”, nevermind look at or study the charts or indicators or anything?! How can I explain the concept that you can literally enter a trade anytime and close it at your choosing anytime?! And I cannot even begin to explain the most amazing part of all. Its not the profits. Its not the part-part-time, time saving concept. Its the part where the “penny drops” and you “get it” and then the automated process of you becoming ever so calm and collected about placing trades with complete trust and conviction. … This amazing strategy has now become the only way to trade for me. … Finally something has come along that actually works and is a secret revealed as being used by the big institutions and legends of the markets. Its your turn now. Its been an amazing and awe inspiring learning curve for me and it has changed me forever as a trader. I now know to make money smartly” Alex Cohen

I’ve never known a trading strategy have this kind of effect on people (or on me for that matter).

You can find out more here.

Related posts:

What is a trailing stop? How many points should you make per trade?