One of the big things that every trader has to come to grips with is that we don’t know. We don’t know if the next trade will work. No idea if this support bounce will actually bounce. Everything we do is based on probability. What we think will likely happen or, what we would like to happen. When we are looking for an entry, we have no idea if it will be a winner or a loser. We have an idea of the likely outcome based on historical probability, but that is the extent of what we know of the trade.


This means that, regardless of how good a setup looks at the time, there is still a chance that you are wrong. Let it sink in. If we got in to a setup and had absolute assuredness that it would work, why use a stop? How well has not using a stop in the past worked out if you weren’t ready for it? I bet that was a great old time you are recalling in your head about now… #sorrynotsorry


We use stops because we already know that we are trading probabilities. If I am right, i won’t need it. If I am wrong, it will protect my capital from the trade (and from myself). The only time a trader isn’t using a stop is because they either have a large enough account to weather even crazy events, or they understand the risks with that decision and are ok with it. It’s as simple as that.


Since that is the biggest hurdle that we have to just deal with, it can really take some time to sink in. One of the best ways for me personally is to assume that every trade I take is the full cost of the stop. That means that if I am taking a long on the NQ with a 40 tick stop, every time I hit the button I assume it costs me $200 (risk on trade). My job then is to make that money back. In this way, when I am stopped out, nothing happened. I already took the loss when I entered the trade, the stop just confirmed the cost of being wrong as I didn’t make anything back. When I win, I can then go from negative to ‘repay’ the cost of the trade and pocket the difference.


How do you deal with the improbability side of trading? Are you totally fine with it already? Or have you really never thought about it?


Stay safe out there traders. Keep those stops in play, and let the winners run!