There are alot of traders who don’t use stops in their plan.  They do this for reasons like “The Algos are out to get me” or I lose too much with a stop” which is really just an excuse for the traders limitations.

When you give excuses for your limitations; you get to keep them.

This can be seen at the highest level all the way to the brand new trader.  Those that don’t plan for stops will be taken out of the game.  Look at Jesse Livermore.  Arguably the most famous trader in history, the book “Reminiscence of a Stock Operator” is a classic and one of the first books traders read when they get into this game.

Yet what the book doesn’t mention is after he made close to a billion dollars in one day by today’s standards, he could not be satisfied with small profits going forward.  He kept risking more and more without any stop, and within 5 years of having a billion dollar day he lost everything for the 3rd time in his life and could not handle it.  He took his own life in a bathroom.

For a more modern take, consider some of today’s hedge funds.  Assets so large they have no stops in place to wind down positions.  Look at the final exit price of VRX for a certain well known manager compared to his entry price and you’ll see just how important the stop truly is.

Who doesn’t use a stop successfully?  Warren Buffett.

Who does use a stop?  O’Neil and traders/investors like them.  It simply comes down to this.  

If you are buying something you plan on giving to your kids for the dividends, then wait for a market extreme mispricing and buy all you can without a stop.  When buffett goes in, he rarely catches the bottom.  Look at how long his bank plays took to get extremely profitable in 08-09 era.  If you’re doing this type of strategy, divide your amount into 3-12 lots and buy it monthly or quarterly and never look back.

If you aren’t investing to give to your kids or retirement, strongly consider stops.  Whether they are % based like an arbitrary 7% or ATR based off the pivot high/low, it doesn’t matter.  You need to have a stop.  

Stop making excuses and start tracking the data.  You’ll see there’s a few times you’re being stop hunted but are you basing the stop off the proper level?  Because a true breakout does not pull back 7%.  A true pullback continuation holds near that pivot low.  

First, analyze your losses and see how close your stop was to the actual level.  We have ways of tracking all of that data in the premium services section if you need help.

If you already know your numbers, then you know the truth.  90% of the stop hunts are coming from the fact you’re trying to get as large as possible with as tight a possible stop as you can get when the proper stop would still have you in the trade.

Longevity; Not Prosperity.  Focusing on the first will give you the second.  Focusing on the second will take the first away.