Don’t Move Your Stop Loss Orders

Stick to your stop losses! It’s better to risk the chance of giving up potential profits than to risk a more probable chance of losing money! Many experienced investors often fall into the trap where they move their stop loss orders lower, believing that the fall in market prices is only a temporary fall, and things will get better.

So why did you lower your stop loss order in the first place?

You bought at the wrong time, and now the investment is going against you. This happens to literally everyone. But what you decide to do is to move your stop loss order, that way the declining price will not hit your stop loss order. Every time the market moves lower, you lower your stop loss order. You’re thinking “my analysis of this investment was right, this is only a temporary drop in the market, and I’ll simply wait until things are going my way.” This kind of thinking and action usually results in LOSING MONEY.

Or, you may simply be afraid to admit that you’re wrong. People hate to admit that they’re wrong. Investors hate to admit that they made the wrong investment decision. But do you want to stand by your arrogance, or do you want to avoid losing money?

How to avoid moving your stop loss order.

If you’re experiencing this kind of a dilemma, consider asking yourself “why did I create a stop loss order in the first place?” To avoid losing more money when the investment / trade goes against you. To cut your losses when the market goes against you.

Most of the time, if the investment has been going against you for a while (a few weeks), that means that you’re wrong. Your position is terrible, and it’s time to listen to your stop loss orders and cut your losses. But you probably don’t want to do so, because there still is a chance that your investment will work out. Don’t do that! It’s better to cut a 60% chance of losing money than to hold onto an investment that has a 40% chance of losing money. Afterall, if you’re down 50%, you’re going to need a 100% investment gain to make that money back.

Point is, listen to your stop loss orders.

16 thoughts on “Don’t Move Your Stop Loss Orders”

  1. I agree with the above comment — moving it defeats the purpose of having it there in the first place.

    I’m a broad-market ETF girl myself, but I do trade a little bit of “fun money” every now and again. Its not really my style, though.

  2. I l-o-v-e stop losses. People get down when the stop loss hits instead of lovin’ the fact that they get a chance to keep fighting another day with (in most cases) more money.

    …and, as a bonus, people forget that they can always get back into the position later. It’s not like you’re forbidden from revisiting.

    The other aspect of a stop loss that I dig is this: I can evaluate the flaw in my thinking without the pressure of still holding the stock.

    1. You hit the key point spot on. People are always afraid of “I’ll lose my position!” So what???!!! Like you said, you can get back in at any time.
      I find that not having a position enables clearer thinking, because you get to see the big picture as a bystander.

    1. Yea. But JP @ Novel Investor raised a good point too. I think it would be a good idea to break your stop losses into sections (maybe 33% each), that way you won’t get washed out by a sudden crash. But then again, events like the flash crash are very rare, and the NYSE commission reverses all trades made during that period.

  3. I did use stop loss set up in the past. Often I had to repent why didn’t I saved the stock for a few more months, why did I let stop loss sell my stocks…but, you are right people tend to lose bigger money if hey keep moving their stop loss trigger.

  4. When you move your stop it defeats the purpose of putting it there in the first place. If you can’t trade without your emotions, then you should probably look to an ETF or a mutual fund. My wife’s grandparents are emotional investors. They have lost a sizable chunk of their retirement to emotional investing.

  5. i’ve done this many times. by moving my stop orders, i lost so much more than i should have. but I also hate it when the price hits my stop order and then proceeds to recover. that is just the worst feeling. Generally for me, stop orders have not done me well at all.

    1. Oh. I know guys that use stop orders that are split into levels. Lke 1/3 at $14, 1/3 at $15, and 1/3 at $16.

  6. I rarely use stop loss orders, mostly due to the flash crash and not wanting to be forced out of a position because of some “computer error”. Instead I have alerts set up at 10% and 20% upside and downside. Totally agree though, lower your minimum tends to cause more trouble than good.

  7. When I first started trading forex I would constantly move my stop. I had a price that I should have stuck to but I would move it because I was confident it would come back to where I wanted it to be. Now I stick with my initial research and do not trade on emotion, just facts.

  8. Great advice. Now I don’t use stop loss orders but protective puts instead. I allow them to exercise and then can increase my position if I feel that my analysis was good but just not timely.

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