I know you.
I know that when Summer of ’69 by Bryan Adams comes on the radio, you roll up the windows and scream the entire song. I know that you watch Gossip Girl on in-demand when no one’s home and that you’ll grab a Ritz Cracker from your toddler’s snack when he or she isn’t looking.
OK, maybe that’s just me – but I do know for a fact that you rarely Honor Thy Stops when they are merely Visual as opposed to entered orders. In the spirit of the New Year and because the market will go down sooner or later (maybe), let’s keep it real and be honest about this stuff.
Putting in a visual stop loss – meaning you’ll keep an eye on a certain level to sell your stock – is fine from a tactical standpoint, but let’s stop pretending that it is an actual stop loss. A visual stop is that secret sleeve of Oreos that you snuck into Fat Camp, that “one last drink” at the bar across the street from rehab. Only a real stop loss is an actual stop loss. Hard, entered into the system, good-til-canceled and definite.
The point of hard stop loss orders (those physically entered into your system) is risk management, of course, but it’s really a certain kind of risk management. The kind that rules with an iron fist. The kind that removes the emotion from a buy or sell decision (the decision had already been made at an earlier, less emotional time).
I can count on one hand the amount of times I’ve had a visual stop, ignored it for emotional reasons (I can’t sell now, such-and-such is about to happen!) and have had a successful outcome. It’s almost always been dumb to ignore these fake, smooshy stops. But it was even dumber to have them as “soft” stops in the first place – they should’ve been hard ones.
Now believe me, I’ve manually over-ridden hard stop orders as well, although not as frequently. The outcomes also tended to be poor, but not overwhelmingly so because I had a “damn good reason” to go back into the order status screens to make those overrides. Sometimes I didn’t have a good reason in retrospect, lol.
Even the most hands-on traders know not to try to “eyeball” every exit. Predefined sell levels and risk parameters are not just for the lazy or for those lacking confidence – they are for the disciplined. After all, do things materially change “on the ground” so often as to warrant the exclusion of these orders from your repertoire? No, not really.
So I mostly put ’em in, leave ’em in and only adjust ’em to trail a winner higher. Respecting hard stop loss orders is not always the right thing to do, but it usually is, and that’s the game.