Tuesday, April 8, 2008

Mental stop

I've picked up the trading strategy with very tight stops so my takeprofit is about 6 pips and my stoploss is about 4-7 pips. I do not want my stoploss point to be suddenly spiked out so it is mental one.

Mental stop is the hardest thing for a beginner. The beginner can sit in red and pray that it will turn green and immidiately catches small green pips. So why you can sit in red for an hour if you usually take your profit in 5 minutes?? It is all about the beginner's psychology. The beginner probably read the rule of the thumb "CUT YOUR LOSSES AND LET THE PROFIT RUN" about 10 000 times but he lets his losses run and cuts his profits.

So if your take profit usually occurs in 5 minuts why you can sit for hours in losses? If you are not in green for a "long time"(this time depends on timeframe you trade) - do not pray but cut your losses. If you see your mental stop (for example 7 pips) is about to hit and suddenly the price retraces to -2 pips, very next quote it goes against you to -3 pips - do not hesitate and take these "-3". Think in the following way: "It retraced from -7 to -3, so I just earned 4 pips. Next time I am in trade I will go for less pips to breakeven. The other opportunity is waiting".

So when the ship starts to sink - do not pray - JUMP!