How Traders Get Scared Out Early

Hey friend,

Nothing on the economic calendar today – just the minutes from the last Fed meeting.

Tomorrow, we get the usual weekly jobless claims as well as leading indicators for the economy.

Let’s see how the markets have been moving.

The Daily Direction

Note: All indexes closed lower yesterday again but are moving higher today – keeping all index directions in the green.

The Daily Nugget

Don’t let a pullback scare you out early.

A lot of traders do something strange with stop losses.

They set one when they enter the trade…

Then ignore it completely once the stock starts moving against them.

They get nervous and sell before the stop is ever reached.

That usually happens after a few ugly sessions.

You bought the stock with a plan.

You knew how much room you wanted to give the trade.

Then the market pulls back for three days and suddenly that plan feels way too generous.

So you bail early.

And plenty of times, the stock never actually breaks the level that would have invalidated the trade.

It just made you uncomfortable.

That’s why the stop you set at the beginning is so useful.

It gives you a decision point that was chosen before the fear kicked in.

If the stock hits it, get out.

That was the deal.

But if it hasn’t…

Be careful about inventing a new reason to sell just because the last few candles are red.

Of course, new information can change the trade.

A bad earnings report. A broken chart. Something that genuinely changes the setup.

If that’s the case – feel free to adjust.

But absent that, give the trade the room you originally decided it needed.

A few bad days can make a position feel much worse than it actually looks.

Your stop is there to help separate the two.

The Traders Agency Team