Page 10 - Module 6 Costly mistakes

Module 6 – How to avoid costly trading mistakes

levels for your Stop Loss order. Traders who use random Stop Loss orders tend to re-enter and
revenge trade more often because they still believe that their trade idea is still valid.

Don’t personalize losses and stick to your stop!
Realizing a losing trade is normal in trading and it is unavoidable. Most traders know this concept
and understand that you just cannot trade with a 100% Winrate. BUT! But, when it comes to dealing
with losses, traders are particularly bad. When price hits your Stop Loss, it is not a sign that you are
a bad trader, or that you have done something wrong, but just that your trade idea did not work out.
As a trader you must make sure that you can come back tomorrow and not lose all your money, or
an unnecessarily large amount, on a single trade. If you ever find yourself widening Stop Loss orders
or taking them off completely because you want to give your trade the chance to turn around, think
twice and truly evaluate your objectives and reasonings.
The break-even trader
Moving a Stop Loss to the point of your entry (breakeven) is a great incompetent mistake when done
with the wrong intentions. The point of your entry, especially if you trade the obvious moving
averages or support & resistance levels, is very evident and the experienced traders will know where
novices get into their positions and that they move stops to break even. This makes stop hunting
very easy.

Volatility and changing stop loss orders
Financial markets are constantly changing, the volatility changes and how price reacts to certain
conditions varies a lot. Traders, on the other hand, use a fixed and always constant approach when
it comes to placing Stop Loss orders. Often, traders, even use the same Stop Loss approach across
different financial instruments or timeframes. Being a trader means adapting to changing market
conditions. By tracking volatility and how price behaviour changes over time, you can improve your
order placement by adjusting your Stop Loss approach. In times of higher volatility, use a wider
Stop Loss and Take Profit method. In times of low volatility, use smaller orders. Some popular Tools
to measure volatility and changes are the ATR indicator and Bollinger Bands®.

12. tools and indicators to improve stop loss placement

Bollinger Bands
Especially for trend following traders, the Bollinger Bands are a great tool for stop placement and
for trailing your stop. In an uptrend you typically see that price moves higher close to the outer
Bollinger Bands. A trend that is losing momentum will start pulling away from the outer band and
gravitate towards the middle band. Keep in mind that the middle band is a moving average, so it
makes sense that during a trend price pulls away from the average and once price loses momentum,
it comes back to its average.

Trend following traders would place their stop above/below the middle band and trail it along with
it as the trend moves on. A trader who prefers a more conservative strategy would place his stop
outside the opposite outer Bollinger Band.

Trendline and Support and Resistance
Trendlines are a famous tool when it comes to stop placement. As a natural support and resistance
level, trendlines are used by many traders and the self-fulfilling prophecy plays into this equation.

A trendline-break often signals the end, or the weakening of a trend and it makes only sense to have
your stop on the other side of a trendline so that you exit your trade when clear price signals are
given. Draw trendlines connecting the extremes (price wicks) so that you are on the safer side when
it comes to stop placement and avoid false signals during premature volatility spikes. Support and
Resistance levels are often more suited for range environments since some of the concepts, such as

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