US SP 500 – Filthy Stop Out

What’s wrong with this picture?

US SP 500 – 5 Minutes

I put a fair amount of time and effort into working out my stop loss levels – but the market is clearly smarter than me. The chart shows what happened to my long position in the US SP 500 overnight.

%$#@ I hate that!

The market goes against me just enough to trigger my stop loss, then turns around. It’s no wonder traders are prone to paranoia – it feels like the market is out to get me.

I know, I know, stop loss orders are a very important tool that protect my capital and keep me in the market – they mean I will live to trade another day. The important thing is to not let market action knock me off-balance emotionally. That can lead to poor decision making. Still.

Does anyone else have a filthy stop out story?

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
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35 Responses to US SP 500 – Filthy Stop Out

  1. Tim stannard says:

    HA. I took that trade at the same time you did and i also got stoped. makes me feel a little better now. Because Of the great entry we still took great profit. chin up hey

    • Thanks Tim – I know you’re right, but I’m still filthy. Think I’ll hold off trading until I calm down again

      • Robert Skinner says:

        I agree Michael setting the right stop is challenging. However, a few interesting points which helped me benefit
        1. The sell off pulled up just short of .382 of the rally from recent lows
        2. The pullback was from friday’s closing high to wednesday’s low, 3 days or 4 including the high itself
        3. This point is bound to raise some ire, but Wed 28/11 at about 1445 GMT was the full moon. A time to be careful as there can be emotional extremes within a 24 hour window around lunar cycles.
        4. I also heard that the Gann guys were talking a 28/11 cycle rolling through

        What ever we may think of the above, one thing that helps is being awake and focused. I hate the feeling of throwing my fate to the market whilst I sleep.
        like driving cars, it pays to stay awake….. all the best R

  2. VJ says:

    Quite a few times – looks like stop hunt? Could that be true as I am not sure.

  3. Phil says:

    Actually yes and much closer than what you suffered last night.
    Too often I get stopped out only to find the markets turn back around within one or two points and head back up (or down).
    The prices always seem to move just that little beyond key support and resistance levels before turning around. To be confident of any position you need to give yourself at least an extra 5-10 points on your stops to be aure you don’t get unnecessarily stopped, this of course means your position size is that much smaller.
    You can’t help but wonder if the market (or market makers) are out to get you!!

    • Interesting – would like to read how other traders handle this problem

      • Peter Lyttle says:

        Thank you for sharing with us the unfortunate stop out. The market is more irrational than you and ourselves for a longer period of time, as always. Looks like even the best (yourselves) get stopped out once in a while. We, the nubies and experienced traders alike, (hopefully) take heart that we are not the only ones to suffer the emotionally infuriating instances of your stop being triggered and then turning. Without a stop loss (not a good idea), we would probably all be good profitable traders, because our initial chart analysis most often proves to be the correct analysis. Trade entered, high expectations, small short term gain, turns back and meanders towards your stop, eventually hitting it. On it’s way to your stop it has, of course, morphed into another chart pattern (with its own “percentage of success”), turned back towards you initial entry, but never quite making it. Mindset change, looking like a good time to ‘get outa there”, with a smaller loss rather than a larger one. Sometimes a good idea, sometimes not. How do we handle this problem? Emotionally, with difficulty, all I’m sure. We know we must/should use a stop loss as a part of good risk management based on various methods, but so often it is not enough. The risk reward ratio starts to look ridiculous. Still we battle on because we think we might be able predict the next bar/s, based on good anaysis (of the left hand side of the chart/past ) and live observation, and it continues to bite us all, and all too often. Clearly not a game for the faint of heart or the impatient, nor the weak of hand. As an experienced nubie, having looked at every indicator combination possible over the last 10 years on many platforms, I still search for the “Holy Grail of The Crystal Ball Indicator”, which isn’t there, because it doesn’t exist. Happy trading to all as we continue to play the risky game of probability with “The Market” as it does it’s drunken/random walk in the park with its 2 best mates, Mr Big Fat Chance and Aurthur Ormartha. That’s my twenty, cheers
        Thanks for the blog ( and on ABC24 )

      • Thanks for your thoughts Peter – don’t think you can still classify your self as a “Nubie” given your detailed market knowledge

      • Peter Lyttle says:

        Just an experienced nubie in search of the knowledge. There are my “eureka” moments, followed by days of “I know nothing”. My problem is entry in the right direction, but at the wrong time. Then time wasted whilst awaiting to get back to break even, to then get out with minimal loss, always affecting the emotions. Haven’t cracked this hard nut as yet.

  4. Peter Fagan says:

    This happen to me over night with Copper. Shattered…..

  5. Happens to the bears too, and I also see assassins in the shadows when it does! In fact, as I understand it, stops are transparent in the broker and interbank market making the calculation of setting stops off quite simple.

    Quite often though, after the venom in the blood fades, it does prove to be the prudent course to take. Who knows where the market will be in a few sessions? Buying the absolute lows and selling the absolute highs is not realistic (as often they are just ticks anyway). A profit is a profit though so well done on that.

  6. Tim stannard says:

    I handle it with a stiff drink, then things just don’t seem as bad then. Pub lunch today?
    You have to remember that if it hadn’t turned on your stop but kept going to the down side you would have been angry you didn’t play a closer trailing stop.

  7. Desmond says:

    While I believe that stop loss hunting and market maker manipulation exists, it does not happen every time and every trader, including myself, will face this situation due to genuine market movement many times. I just accept it. While there is monetary loss, I compensate that with the knowledge that my market analysis was correct if the market did indeed move the way I expected it too. Confidence is important if one is to remain in the game!

  8. djmcc1968 says:

    ha… I had 3000 RIO shares and got stopped out one or two days before BHP put in the buy bid years ago and they jumped $100 overnight… story of my life… that one trade might have covered the losses of the GFC… might..

  9. Bruce Haley says:

    Dear Michael. This occurs all the time with my stops. Makes me think I’ve got @#$ written on my forehead latest one was your long gold trade. Got on very nicely at 1730 stop at 1722.12 and guess where it went – 1721. To make matters it closed for the day at… you guessed it 1722.10!! Then promptly traded up to 1750 which I couldn’t justify trading it again GRRRR pleased to hear it happens to the best of ’em 🙂

  10. Bing says:

    A few weeks ago I was trading US30. The position was profitable when market was closed due to the hurricane in the US. Next moring the index opened with a quick dip and I was stopped out by 0.5 point. A profitable trade turned into loss. So I jumped back into trading immediately trying to ‘revenge’ the market. Of course the market won again. My overheated brain and emotion were not helpful at all. So It’s a good idea to take a rest before rushing back to trading. A drink does help sometimes.

  11. Alan Price says:

    Maybe try my method of thinking of a stop price…..then place a buy order at that price….As I have mentioned to you on the ferry, it works 80% of the time in my favour….although my account value does not show it!
    Cheers
    Alan

  12. william small says:

    Hi Michael. Im learning so i just watched this trade, is this the trade you did on the 16/11/2012, if so at what point did you lift your stop price. On the original trade you had a stop of 1341. William.

  13. Klaus Bohm says:

    stop losses are like waving a red flag: come and get me and the market will for sure – so stay in control and stay with the action

    Kind Regards

    • Peter Lyttle says:

      Prohetic thoughts Klaus, can you elaborate on a good strategy for surviving the stop loss hunt?

  14. Bruce Crumpton says:

    At the risk of appearing to be trivialising a frustrating experience, i have to say i had a big belly laugh over the title of article and how it resonates with my thoughts at times. I think we can all take heart in the fact that when you so often think you are the only one experiencing this often frustrating outcome, look at the response to the article and take heart that it’s not a conspiracy and what i see is it happens to even the most experienced traders. Great article Michael..

  15. djpalumbo says:

    Thanks for the article Michael, this has resonated well with me also as I got stopped out of spx500 around the same spot.
    I like to call these “bees d!@k stop outs! They are so annoying… but they dont kill you.
    At least we know we were on the right track seeing the bulls came back so well. It just means we look for the next opening and then hope there are no more negative comments on fiscal cliff that briefly rattle the world markets for a little while longer (at least until xmas)

  16. dv34 says:

    Lol, yes… I don’t know a trader yet who hasn’t had a frustrating ping loss only to see it do what they thought… only without them…!! Just another part of trading

    • dv34 says:

      I think the best part about all these comments are the level headed approaches to dealing with it, taking time off and not personalizing it and letting the frustration fade so that on your next trade your thinking is clear… nice post Michael! thanks!

  17. Julz says:

    I started to go long the us30, s&p500 and Nasdaq 4 weeks ago with tight stop loss, got kicked out 3 times (with a big gap b/w each of them when I re-entered the trades and was pretty happy with my plan) and on the 4th time which was the Friday before last I had exactly the same situation as you had last night. When I got up on Sat morning only to find out I got stopped out a few points of my stop loss on all three indices before they all turned around and then kept going up till today.
    Markets recently react mostly on comments and not on fundamentals or technical signals, one slightest comment from any key polictician could turn the trade around fairly quickly.
    Stop loss hunt is always in my mind as I believe it’s always there but got to learn to trade and live with it.
    I now look to short all three of them again.

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