HOW TO reduce losing trades (STOP with STOP LOSS!)
Alberto Costa's YouTube tutorial explains why correctly-timed trend trades can still be stopped out by short-term price moves—often because other market participants hunt obvious/clustered stop-loss levels—and gives three practical tactics to reduce these false stop-outs: avoid illiquid/penny stocks, place stops at least ~1 ATR away from support/resistance, and avoid round/obvious stop levels (use slightly odd prices).
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Have you ever had this situation? You buy some stocks, you place your stop loss and the price is going up as you wanted. And then suddenly, a few days later, there is a change in the trend. So the price goes down, your stop loss is triggered and you exit with a loss. And after that, as if it was magic, the price starts to go up again and continue with the main trend. I'm sure that this happened to you. And in this video we are going to analyze the reasons why this happened and some strategies that you can implement in order to reduce this problem. Because if you are right with your main trend, but then every time you hit stop loss, you are not going to be profitable. So let's check first why this happened. As I said, suppose that say you are doing trend following. So you see a nice stock that is going up like that, the price is going up. Of course it's not like that in practice. But let's say that suddenly there is an opportunity to buy here, okay? So you enter here and maybe you place your stop loss here, okay? And the price, sometimes it will do this. It will go up, then go down, okay? It will trigger here your stop loss. And then after that it will start to go up again. So what does it mean? You exit with a loss. But you were right with the main trend because the main trend is going up. So what is the problem here? The problem is that sometimes, and I will show you later in which situation this happen, there are some players, let's say in the market that can see where everyone else place stop loss. So say that you place your stop loss here, but many other people place stop loss here or here. So around this area. So what these people can do is basically the following. They can drive the price down, okay, in order to trigger all this stop loss. And when this happen, they will buy and drive the price up again. So by triggering the stop loss, they can buy cheap and then they can profit from from that. Now the question is how can you avoid that? And I'm going to share with you three strategies that you can do. You can implement in order to reduce this. Of course, you will never be able to completely remove this unless you trade without stop loss. That may be something you can do if you're doing day trading, maybe. But in terms of managing your emotion is quite hard because the risk may be that you don't want to sell if you don't have a stop loss. But if you are doing a longer term trading, then you need stop loss. So let's see what you can do in Order to avoid that number one strategy is the following. So let's write them. One, you should avoid illiquid. Illiquid means low volume, okay? And penny stocks, penny in the US market for me means less than $5. So why is this important? Let's have a look here at Finviz that I mentioned in another video is a very, very nice website for free. You can have a lot of information and screeners. And let's take for example this guy. Okay, look at this guy. Well, the volume here. No, well, actually the volume here is fine. It was a 15,000 average volume 172. So if the average volume is above 100 or 200k for me it's fine. So let's see if we have another candidate or maybe this one. Okay, this one is a very good one. So what happened with this guy? First look at this. The price, the trading price is 190, so is much lower than $5. It means it's a penny stock. Number two, look at the average volume here is 9 less than 10,000 shares. And this is the average volume I think in the last three months. So what does it mean? It means that this stock is or it can be easily manipulated. Why? Because when the price is low, some people with a lot of money can really move the price stock a lot. Especially when there is this situation and the volume is low. Because when the volume is low is much more likely to have big difference between the bid ask. And you can see also here that the chart sometimes is a little broken. You don't see nice candles like here. You see these small candles I think you can see here. So it means you may have gaps potentially. And this is something that you want to avoid. Because remember, if people can see your stop loss and it's very easy for them to drive the price where they want, then they can do it. But if you take a very liquid and very expensive stock, it may be very hard to move the price as much. So this is the first strategy to remember. Avoid illiquid and penny stock. What about number two? So the number two is do not put your stop loss too close, Too close to watt. Now if you watch some of the previous videos that I made, I was mentioning that ideally when you are doing say trend following. So for example you have a situation where the price is going say like that. Again, this is not a stock you should consider. But let's just imagine it is. And you have for example the price going up like that. And then you see there is a bounce on some support for Example a moving average. Then you may put your stop loss below the support. How far? Well, the indication is that you can use this ATR average true range. That is basically telling you what you may expect the normal volatility to be. So one indication could be put your stop loss 1 ATR below the support and the support can be a moving average or it can be horizontal support. And of course if you are going short, it will be the resistance. Okay, so what you may do here, you may take this point as a support and then you go 0.42 below, I don't know how much it is. So this should be one ATR and your stop loss will be there. Okay, so by doing that, you basically make sure that you are at least far enough from your entry price so that is less likely that your stop loss will be triggered. Because sometimes the problem is that you may have your stop loss. Say here you put it just a few cents below that candle and in this case it didn't happen. But it may be that you have another candle that is just triggering that one and then you're going up again. Okay, so after that we can have a look at the number three. But before here I think there is an example. You see here, if you look at this green candle, suppose you put your stop loss after below that, right? So your stop loss is just below that green candle. Then the next day the candle is up. So your order is triggered and then that that red candle will basically trigger your stop loss. So you are out with a loss and then the price goes up again. So that's the type of situation you want to avoid. So again, number two, do not put the stop loss too close. So just to clarify, let's say more than one ATR from support in case you're going long of course, otherwise your resistance. So what is the third suggestion I can give you is the following. When you decide to place a stop loss, do not use obvious levels. What do I mean by that? Let's say that you you are trading a stock and then maybe you put your stop loss 180r below support and the stop loss value is say $38. What is the problem? The problem is that many people may use this kind of nice number like 38, 37, 100, 105 to put stop loss statistically is more likely that if you are not aware, you just use some nice number. So if this is the case, rather change a little your stop loss to put some kind of strange number. So if it's 38, you may use I don't know, 37, 94 or 95, whatever it is. So why that? Because if many people put a stop loss near these kind of numbers and then as we say, some people can see that if you do this a little lower as some strange number is possible, that when they push the price down and they trigger all the stop loss, you will not be affected because your stop loss is lower and it is also at some nicer value. So you may be safe. But again, I'm not saying that this will happen all the time. As I say, there is really not much you can do to avoid that. To avoid the market manipulation. You just ideally want to stay away from the potential situation where this can happen. So again, let's recap the three suggestions I have for you. Number one, avoid the liquid or penny stock because they can be easily manipulated. Number two, do not push stop loss too close. So put it at least one ATR from the support. And number three, do not use obvious level for your stop loss. Okay, so if you have 38, rather put 37, 94, 93, 96, whatever. But don't use this kind of very nice levels. And with that I would like to conclude the video. Thank you for watching. Subscribe if you want to be updated when I will upload the new video and as usual see you next time.
