But the problem with mental stops is it's easier to change your mind when in a trade. It can be tempting to give a stock 'more room to work.' Or lower your risk to the next area of support…
That's a dangerous game.
Just look at what happened if you gave SIGA Technologies, Inc. (NASDAQ: SIGA) 'a little more room to work' yesterday…
I told SteadyTrade Team members to watch it for a break above $13.50. We got that move and it made a 25-cent-per-share move. But if you were holding out for more and didn't have a hard stop, you got annihilated…
If you were using a mental stop, you might not have been fast enough to execute your trade.
Maybe you get a phone call, or you're busy at work, and you look away for one second…
Then it's too late.
So if you're new, consider using hard stops. It will mean one less decision you have to make when you're in a trade. And that can help you cut out emotions and the temptation to just hold a little longer…
The Bad
The reason so many traders like to use mental stops over hard stops is that they've been burned when a stock reversed and headed higher after they're out of the trade. It happens…
Just look at my RCI Hospitality Holdings, Inc. (NASDAQ: RICK) example from Friday…
Even after some negative news hit, it reversed and made new daily highs.
I agree — selling at or near the bottom sucks. It's annoying and frustrating.
If that happens to you, watch this video to learn a technique that can prevent you from getting stopped out of trades early.
But one of my favorite sayings is, I'd rather be out and wishing I was in than be in and wishing I was out.
If you're over the PDT, you can always get back if you see another setup.
And if you're starting out under the PDT, using hard stops can help you build the discipline you'll need throughout your trading career.
It's better to build good habits at the beginning than be undisciplined and take huge losses...
Because after a few big losses, before you know it, your account is at $7.18 and you're out of the game for good...
The Ugly
Not using a stop, or not sticking to your stops, is one of the main reasons 90% of traders lose.
So before you think about bag-holding a losing position, ask yourself if that's going to get you where you want to be. Is bag holding that stock going to help you reach your trading goals?
No, it's not. It's going to eat away at you and hold you hostage to your bad decisions.
I know losses are tough. They take a chunk out of your account and maybe a chunk of your confidence...
But taking a small loss is much better than blowing up and missing out on the opportunity to give trading a real shot.
Finding success in trading is possible. Look at me, I'm just an average guy with average intelligence ... Most traders are. But you've gotta stick it out and do the hard work.
Sometimes the hardest thing is cutting a loss.
If you need help with finding the right risk levels for your trades, consider subscribing to my Daily Market Profits alerts.
I give subscribers my number one watch each morning with an entry, goal, and risk level for my trade idea. It can help you get an idea of how to plan your own trades. Because I don't want you to depend on me forever...
I want to teach you a process you can use and refine over time.
If you're ready for a full educational trading experience with twice daily webinars, worksheets, and resources — apply to join the SteadyTrade Team.
I'm here for ya.
Have a great day everyone. See you back here on Money Monday.
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*Please note that these kinds of trading results are not typical. Most traders lose money. It takes years of dedication, hard work, and discipline to learn how to trade, and individual results will vary. Trading is inherently risky. Before making any trades, remember to do your due diligence and never risk more than you can afford to lose.
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