Expecting a miracle?? It probably will not happen. This is intended to help traders get out of a losing position by trading, not as an excuse to ignore stop losses. Ignoring or simply not using stops is the single fastest way to lose all the money in your account. I am serious. While that might help you in the short run eventually there is a 100% chance you will have a massive loss, like 50% or more on your money lost that is invested in the trade if you don’t use a stop. In addition, you will accumulate a portfolio of losing positions and have no more money to trade with. Every huge loss starts with the trader refusing to take a small loss – often times as a result of taking a loss or a stopout and then watching the stock turn in their favor. So the thinking is “They are not gonna get me this time”.  This is how traders learn to trade with bad habits.

The first thing to realize, there are 4 reasons losses that can happen when you are in a day trading or swing trading.

1. Timing is off on the entry
2. You are dead wrong on the direction
3. News items come out and move stock or index against you
4. Your price target to exit is too far away

We will address these one by one.

1. Timing is just not right on the entry price

If your timing is off on the entry (the most common), usually that means the stock will go a little for you, then move against you within the first 5-10 minutes. The amount the price moves against you will be way more than any profit so far, but it does not go to the stop area either. This can be identified by the price hesitating and moving up and down, just below your price for long or just above for short. It should not make a beeline against you and it should not go right near your stop in the first few minutes.

The best way to deal with this type of trade is to assume most of the time you trade you are going to be off. Enter long or short only one half to two-thirds the actual size you want in a position where you think the timing is right. To help with this issue, never use market orders. Put a limit in just slightly below market, almost every time you will get filled. You need to be aware of what type of trade it is – for example on a breakout you probably need to go market or you will miss it. Most trades you enter will not immediately run in your favor, including breakouts. Once you receive a fill back, make sure you place an initial stop loss for that position. Wait a few minutes and see what the stock price does. If it moves in your favor immediately, that means you r timing was spot on and you just trade with what you have as a position.

Most of the time the best deal is to stick with day trading what you have. If the stock moves against you more than for you in the first 5 minutes, but is not a beeline against you (meaning it looks like the trade will stop out etc), then put in an order to add at the low of this 5 minutes (for long) or the high (for shorts). If you are an aggressive trader, you can put in some additional orders and press bets above the high for longs or below the low for shorts. If you are not able to get filled on your better price add shares, the press bets additional shares will usually work out because this means there is not much selling. If the price moves so that you can add at a better price, then make sure you cancel the press bets add shares. If you get your better price add, you can either move your stop down slightly but increase it to include all shares, or place a second stop lower on this second add – it’s up to personal choice. If you get the press bets add, move your initial stop up to just below that low of the 5 minutes, and make sure you increase the shares.

2. The direction you think the stock will move is just wrong

This often happens to even the most seasoned traders. No matter what you try it fails, breakouts, reversasl, or trend following – common theme is you are just dead wrong. This type of trade is easily identifiable from the start, within a few minutes it has already moved further against you than you expected to make if you were right from the start. By this I mean the upside is severely limited (for longs) or downside limited (for shorts). This means it can move easily one direction, but really, really struggles in the direction you bet.

Usually if this happens, the only real chance you have to not lose is to double down on the position near your stop. You are looking to risk another 15c to 20c on double size, betting it will turn in your favor before you stop out. If you want to attempt this, care must be taken to use discipline. Do not expect to make money on the trade. The goal is to minimize the loss by trying to catch a turn near your stop area. If you can the loss you have in half, or even be able to get out even with no loss, take it. Move on to the next trade.

Advanced method when this happens would be to move the stop up on all to just below the turn IF you doubled down and actually caught the turn. When it goes halfway back from your second entry to your first entry, sell the add position. Keep your stop on the other position just below the entry for the add position. The theory is the side that was pushing the price so far against you finally got washed out, so give the rest a shot. Because you added shares and made some back, if you get stopped now you will lose far less than if you did not add. It really is a judgment call whether that is the appropriate play or just to exit all with a minor loss and move on.

3. News items come out and move stock or index against you

This is a tough one. You have to be able to analyze the news very quickly AND decide the impact. The judgment is would this news cause the stock to go far enough to stop me out? If the answer is probably yes, exiting at market before the stop will save you money. If you think there is a chance the news would not stop you out, the plan is to exit the position on a counter move the other way. Most of the time there is no good way to get additional shares if you get caught on the wrong side of a news play. Occasionally the market will react in way A, but a few minutes later they realize they are wrong (or someone made a bad assessment, and the market is changing its mind) and react in way B. If you can uncover and notice that this will probably happen, the add point is the high of the bar where the news came out. Usually that will run stops and trap whoever was playing the news as a quick trade and force them out.

4. Your price target to exit is too far away

This is common to. You have to kind of guess based on how the stock has been trading, localized volatility, and support resistance points where a price move might go to. It is very common to think it can move to A, but it struggles to get to even half of A. If you dont monitor this type real close, it will usually turn into a loser. The main reason is a scale up seller (for long bets) or scale down buyer (for short bets) is betting the other direction and absorbing a lot of the volume.

Most trade setups attract attention, so the more obvious a trade looks, long or short, and it does not really do that or struggles, the bigger the indication is to get the heck out. Some of these can result in a huge move the other way because they trap lots of short term money in the stock trying to trade whatever setup happened. There is no real method to add to work your way out of it, you really just need to pay attention. A general rule is if you think its acting weak and think you should exit – just do it. Your instincts are telling you something important - for the trade setup, the stock is not trading like it. Getting out is the best solution because you are looking to avoid your stop getting hit and saving a bigger loss. Also remember if you happen to exit too early and realize it is a mistake, you can get back in the position in a matter of seconds.

One last word – do not fall into the trap of trying to make money on every trade. If you sense something is off or wrong and you are at a loss, take the loss and move on. Staying in a trade and always trying to turn it into a profit will result in much bigger losses eventually. You can think of the God rule (just a catchphrase) – When a trade goes wrong, (God) gives you one chance to get out – it’s up to you to realize the chance and take it.