why is it bad to use hard stops when day trading why do I use mental stops we're
going to talk about it in this video breaking down the reasoning behind this
theory stay tuned so people keep asking me why do I not use hard stops why don't
I put hard stops in on my trades you know why do I walk it in what's the big
deal why do I always use mental stops towards what kind of stop am I using
first off I'm not using any stops it's all mental and I'm not trying to like oh
I'm big bad mister day trader I use mental so I'm going to explain to you
the reasoning behind that and why I use mental stops and you can give an idea
here so this is HTC on the chart here we're looking at this one it's been
bounced around last couple days but I'm talking about first off we're going to
talk about from the long idea if I'm going along here on HTC why I want to
use the mental stop and why I don't use a hard stop so looking here at HTC let's
say I went long here at $18 I got it back above $18 there I probably wouldn't
have actually done that but if I would have if I would have got long here above
$80 above that whole dollar where would my mental stop be what would the plan be
first off if I got in there 18 dollars right there 18 dollars my stop probably
would have been like 1790 mentally what's the deal here so looking at this
you can see 18 dollars it jumped up there a couple times 1816 people
probably got in there at the break of eighteen dollars it rate up here to 18
18 and they put their stop there right at $18 so they don't want to lose
they're like I'm gonna lock it in putting that hard stop there well what
happens is it bounces here $18 couple times balances balances and then boom
get this little quick drop down there to 1794 my stop would have been at 1790 you
know mentally so I would have been fine but for everybody who put their hard
stop at their $18 they got their share of stolen away from them quickly on this
drop so you know people would put their stop at $18 boob it drops eight 1794
they all got out there people bought it up and what happens is the market makers
can see your stops they can actually see when you put your orders in there on the
level too they can see all the stops people have stops at those areas they
can see the orders sitting there now they see your order what they do is they
just drop the stock real quick they drop it they grab your shares cheap and they
run the price back up which happened perfectly here it dropped down below
1794 back up there at 1818 kind of did the same thing bouncing off
the $18.00 area up there to 1838 so that's one
main reasons I don't use hard stops you can see the market makers do this they
do it every single day they run these prices up and down they take the shares
away from people they just running stops because they know they can do it and
it's easy for them they know the $18 people going to put there hard stops
there they're going to take your shares from you for cheap and they know where
those stops are going to be so they see that stop area they take those stops
they run the price down really quickly they bring it back up and they remove it
price higher and that's how they control the price of the stock that's how they
get more shares they sell shares all that kind of stuff they're doing it and
they're seeing your hard stop sitting there so that's one of the main reasons
I don't use hard stops why should I put my heart stop there and let the market
makers take my shares T so I'm playing every stock with a mental stop and
that's one of the things you don't think about if you have problems cutting your
losses but people say oh I use a hard stop because that forces me to get out
well you really need to focus on your emotion about that and being able to
just mentally get out faster a lot of times that happens immediately says I
will actually put my mental stop I'm like okay seventeen ninety is my mental
stop here and let's say you know it starts to drop I see a lot of sellers
and see a lot of bad stuff going on there I see level two seller stacking up
there I might get out earlier so I'm able to cut my loss earlier a lot of
times than I plan on it I kind of give you the worst case scenario 70-90 being
my stop there if I see a lot of selling going on I don't see any buyer stepping
up there I might get out earlier so that's one of the things think about
when you're trading using a mental stop kind of you need to have that force you
need to be able to cut your loss fast another reason that I'm not using mental
stops and you'll get these stocks that have these little quick jumps let's say
a short here at 1828 I was like okay this might go back lower and then I'm
gonna put my stop hard stop at eighteen thirty six so I put my hard stop there
at eighteen thirty six well look at this it jumps up there - 1839 I would we
gotten stopped out there I would have paid a premium and then boom it crashed
it down here to 1790 so I would have gotten out there hard stop would have
taken me out and I would have gotten out of this trade for a loss and then look
and moved lower just like I had planned so that's one of the reasons I'm not
using hard stops because a lot of these stocks they move fast they move up and
down really fast and you'll get taken out on these little jumps 1836 was clear
double top there and open had that trouble again same kind of selling area
1836 holding it down had that little quick pop you know the seller probably
just let them run it up there real quickly just like it crash it back down
get some more shares filled higher and that's exactly
what happen I'm watching level two of washing time and sales I'm going to make
sure the move is real I'm not going to just put my hard stop there 18:36 and
get stopped out I'm gonna look at this and okay you know it's moving higher but
it's not a big increase of volume you know we got I know that sellers there is
a big seller there at 1840 1838 holding this down so I'm watching level 2 I'm
washing time and sales if I see 18 you know 38 getting eaten out there if I see
volume increasing then I'll get out but if it's a fake move it's just a little
quick jump I'm not going to put a hard stop there and get taken out people
buying it up a little bit and then getting crashed down you can see later
on it went back down to the 1770 area in the day but you can see these are two
reasons I don't use hard stops I'm always using mental stops I need to go
into every single trade knowing my plan if I go into this trade I know my stop
area is going to be at 1836 but then I'm watching it very closely I'm watching
level 2 i'm watching time and sales I'm watching the volume I'm really making
sure that move above that stop area that mental stop is a real move it's not just
a fake out you know sometimes get a little fake
outz above that resistance is a big crash afterwards so that's exactly what
happened here and like I said you need to go every single trade with a plan you
need to know exactly we're going to cut your loss and you have an idea we're
going to take profit and when you go into trade with those ideas it removes a
lot of the emotion that people have when the stock does start to crash or when it
does go up and they're not able to cut their loss or they're not able to take
profit when they have it because emotionally they're like oh this is
going to go lower when you go into trade knowing kind of where your take profit
knowing we're going to cut your loss is a lot easier to do those things when you
have that idea of what's actually going on this is a clear example looking at
htz why I never use hard stops like I said about a shorted here it was God
above that 18:36 for just a split second I've got stopped out there and then boom
it crashes so got to be very careful when using those charge stops and I'm
always using mental stops I'm watching every single stock that I'm trading like
at hawk I'm watching level 2 I'm watching the time and sales and I'm
making sure those moves are a real move it's got real volume real power behind
it if it's just a fake out if it's just manipulation I'm going to sit back and
wait for this to drop so I'm using and combining everything that I'm watching
here and you can see hdz showing you exactly what would have
happened if I had a hard stop there to get taken out losing out on that trade
so those are two reasons that hopefully you guys understand a little bit better
why I do not you card stops am i telling you do not use
water stops no if you need to use heart stops for like I said the emotional idea
that you that you can't cut your losses fast enough that's fine go for it do it
however it works for you if you're not able to watch the stock all day long if
you're not watching it every single minute every single move like I am this
is how I trades is how I use mental stops instead of using hard stops to
benefit my type of trading of how you know I'm watching these stocks very very
closely as I'm in the trade I'm not going to let this thing run up higher
I'm not going to let it just crash and not take profits so on that note
hopefully helps you guys if you haven't already make sure you subscribe the
channel I'm uploading daily videos every single day basically and hopefully you
guys are going to learn a little bit more from these videos because if not
I'm just wasting my time you remember the number one saying for everyone out
there in the stock market world bulls and bears make money but pigs get
slaughtered