Page 398 - THE MARKET WHISPERER

394 PART 11 - Risk Management

cases, the price will return to its high and you will feel like the perfect idiot
for having exited.

When is It Worth Placing a Hard Stop?
• When I am concurrently holding several (usually more than three)

stocks and it becomes difficult to track each of them
• When my stop point is very far from the current price and I am not

afraid that unexpected spikes might shake me out
• When I leave my desk for more than a few minutes

Different strokes for different folks: some traders are unwilling to lose
more than a specific amount of money per trade, irrespective of the stock’s
technical formation, and will always place a hard stop in the trading
platform. Sometimes it will be a timely rescue from loss, and at other times
the traders will be shaken out sharply and suddenly without enjoying the
highs that follow, since they have not given the price a reasonable breathing
space. This is not my modus operandi during trading, but that does not
mean using hard stops is an incorrect method. Both options have their
good and bad points. Either method is correct if it contributes profitability
over the long term and suits the trader’s personality. Hard stops may be
excellent for the novice trader, since they ease the psychological coping
with market fluctuation, but may be harmful to the experienced trader
who is less likely to react to sudden market movements.

Summarizing: The hard stop is usually worth avoiding. Use it only
when you have no other choice. The mental stop, despite its disadvantages
for the inexperienced, is the correct one to use. As you develop your trader
skills and your self-discipline, try to become accustomed to it.