Somebody in the room told me they got stopped out of a spread.
I want to talk about that for a minute, because it drives me absolutely nuts.
Did anybody ever ask you to put a stop order on a defined risk trade? A spread has your risk written into it already. You paid what you paid, and that’s the most the market can take from you.
So you don’t have to further define your risk on an already risk-defined trade, do you?
I’m just asking…
People that put stop orders on spreads, there is something wrong with you. I don’t care whether you bought it or you sold it.
And if you don’t like the risk, I’ve got better news for you. Don’t do the damn trade.
Does that sound reasonable? Does it?
Here’s what happens when you stop out of a spread. You take the loss at the worst possible moment, on a trade whose whole mathematical premise assumed you’d hold it, and you turn a defined risk into a realized one for nothing.
I’ve got a spread on right now that’s been sitting there almost three weeks, and it was down dramatically. It’s coming around.
For every time I’ve had a losing spread turn into a massive winner, too numerous to mention.
That trade would have been dead the first week if I’d had a stop under it.
So, no stops on spreads. None. Don’t do it.
Enough said…
Now, onto something that can help you make money.
Thursday at 2 Eastern I’m going through the two numbers I write down before every single trade, and one of them is the reason a stop order on a spread makes no sense at all.
All 80 trades from the last 16 months go on the screen, losers included. And somebody in that room walks out with $1,000.
To your success,
Don Kaufman
