Hey Kitt... yes. Very observant. This goes on in the equities market as well. It's called legal thievery if you ask me. I would liken it to a bank in a city that had a band of robbers sanctioned by the chief of police that could come in and rob the customers blind anytime they pleased, as long as they were careful and didn't dip into the Police Pension fund... I choose to bank at the adjacent city, the one without the sanctioned band of brigands... The city without stop losses. People think it's imagined or overblown, but it's absolutely true. MM's will go after and 'hunt' stops... I think it's a bit of a sport to them. You can place your stop as far out as you think they possibly can't find it, even with a very small position, and they will STILL get you. And they tend to do it at the worst time too, right when the market is about to make a real move in your direction. I think they use the added volatility and the volume of the true move coming in, and attempt to wipe out all of the positions with stops in them just for fun, so those people don't get to participate in the real move. I can't tell you the number of times this has happened to me in the past. I would wake up happy to see the market had moved nicely in my direction through the early morning hours, only to realize that I had been stopped out at 1 am and had seen none of those gains.
Each trader is diffeerent, and has different tolerances for risk, and eventually will learn how they want to trade for themselves, and most likely learn some very harsh lessons taught by an unforgiving market along the way but a few things I would recommend to any new trader;
1. DO NOT USE STOP LOSSES. To me, if you are using a Stop Loss, it is a clear sign of 2 things, a. You really have no confidence in your position and are basically guessing. You probably shoulden't be putting on a trade b. You are risking too much capital
2. When I enter a trade, I am very very confident that the outcome will go in my favor, but of course it doesn't alway work out the way you thought it might. But as you get better, you will realize that you are guessing wrong less, and not only that, but when you guess wrong, your losses will be much smaller than your gains when you guess correctly. In order to have no fear when entering a trade, I use a three tiered system, and the maximum number of contracts (10,000 lots) I will ever open up at any one time will be directly related to my maximum daily loss threshold... For everyone it will be different, but think about it and honestly ask yourself what is the MOST money you could could lose in one day of trading and be OK with it? I would set this up as your initial account balance. Then you open up your position sizes in relation to that maximum loss threshold, of course sizing appropriately and remembering to use some room for margin, as this is another annoying aspect that can work against you when your account gets liquidated right before a big move. You may find that you are only able to open up 1 or 2 contracts at first, but so what? It's not a race. And there is plently of volatility in just that amount anyway. I will grade my confidence in a position between 1-3, with 3 being what I view as a slam dunk no two ways about it trade, and a 1 being I still like the trade, but I can see the other side of it also. I will open up contracts tied to how well I like the trade. Obviously I'm not going to open up 3 contracts if I'm so so about a trade, but I might if I really really love the position. The other thing that I like to do is cut my account in half (take out half of the money) When I double it (which would be twice my maximum daily threshold loss). This system works quite nicely for me. Happy trading!
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