One of the few tools a trader has to control risk is the stop loss. Basically it is a sell order to close a position if price drops below a given number. When a stop loss order triggers, it evokes many feelings on a trader like frustration or anger and it is difficult to rationalize that it is a “good thing.” It took a good effort on my part to train myself to accept stops taking me out of the market. But with the help of my Journal, I was able to both quantify how much I would have lost without them and by writing down my thoughts and feelings right when they triggered I learned to cope with my emotions.
Here is an example of the benefits of a stop loss. Take the ACI trade last week. Losses were minimized when the stop loss order triggered at $27.98 (46 cents) and I was able to re-enter the position a day later at $26.71 with a stop loss at $26.54 and sell at $27.44 (~4 R/R) for a quick day trade and book 93 cents profit. It erased the previous loss and added some green to my account.
ACI Stop loss example and re-entry
