7/03/2014: Nikkei – +420 – Always have your stops in place!

This is a late write-up due to being overtaken by events. The nature of the trade is that it was a WallachieFan UTB123 Long trade on the Daily Nikkei chart. These trades are just short-term momentum plays. Think of them as a boxers jab rather than a knock-out blow. This trade triggered and hit target for +420 points – but that is not the story I want to tell here.

What I want to use this post is as a reminder of the importance of having your stop orders in place for when events move fast.  I know lots of people don’t like to use stops (fools in my mind) and some like to use mental stops (namely they don’t place them on the system but trust themselves to exit a position when it goes against them).  The events around this trade are a great example of a) why you need stops and b) why you should always honour them and check them.

The trade was a long trade-off the daily chart, it was finally triggered on Monday 24th February and bounced around entry for the remainder of that week in a range between +160 and – 235. I was happy for the trade to run over the weekend.

Well that weekend we saw events begin to unfold in the Crimea. I watched it closely (you can read my tweets from that day) and figured my trade ‘had gone for a Burton’  (It was RAF slang in world war two, and was taken from a series of adverts for Burton Ale – there would always be someone obviously missing from the scene, i.e. an empty chair or something, and the catch phrase was ‘He’s gone for a Burton’. RAF crews used it as a euphemism for people killed or missing in action.)  So I was not surprised that the trade opened against me on Sunday evening and that it continued against me as the markets absorbed the news coming out of Crimea.

The trade licked my stop-loss but I was not taken out and I figured that it was only a matter of time before I was stopped out.    However this is where the story gets interesting. Unfortunately on the Monday I received bad news that my mother was seriously ill and had been rushed directly to hospital by the Doctor.    Despite my training, confidence and calmness when you hear news like that your priorities and focus shift quickly.   So mentally the trade was de-prioritised for me as I re-focused on more important events. In fact it was two and a half days later before I re-checked that particular trading account to find that a) my position was still open and b) was near my profit target.  That was a nice pleasant surprise however what worried me more was the fact that I had taken my eye off the ball for nearly three days.  Now I know that I always set targets and stops so I was always going to be ‘ok’ however it was still a little un-nerving to experience those thoughts.  It made me think about all those people who either trade a) without stops or b) with mental stops and how their accounts could have been crushed had the Crimea event turned nasty whilst they were away dealing with an emergency.

Hopefully my openness will give you some insight into what can happen. So please reader learn from my mistakes. I was very lucky here in that the trade turned around and hit my profit target instead of my stop-loss, however the important thing to be aware of is how quickly I de-prioritised my trade (basically forgot about it) as I was distracted by the more pressing news about my mother.  Take my advice when I say don’t trade without some sort of catastrophic stop-loss in place and only risk small amounts of capital on any one position.   When you have a day where you can get blind-sided by market movements, geopolitical events and threats to loved-ones you’ll be surprised how you react. What you don’t need on top of that is to come back and find your account blown because of weak (or no) risk management.

Trade well!

Paul