Why does the stop loss always get touched in the stock market?
Friend,
Your question is justified. Because if we back test the chart, we will find that the stock breaks its resistance and gives buying signals and as soon as we buy, it starts going down and finally touches the stop loss and turns back from there.
In such a situation, some questions automatically come to our mind that
1) Do big traders know our stop loss?
2) Why did the stock not give the desired move even after breaking the resistance?
3) What should we do in such a situation?
Okay, in the beginning, the above question was in my mind too. But with time and with the help of backtesting, I have fixed it.
After today, the above three questions will not travel with you either.
Let's come to all the questions one by one.
1) Do big traders know our stop loss?
I have seen it by working with big traders. Big traders do not have the data of your stop loss. Yes, big traders know better that upto what point a retail trader can get nervous or panic.
Suppose if the resistance is at 800, then big traders assume that most retail traders will buy above it and if the market goes down by even 10 points from here, then 70 percent of retail traders will easily get nervous. On the other hand, if it is increased a little more and the market is taken to 13-15 points, then most retail traders will be out of the trade.
2) Why do we not get the desired results after buying after breaking resistance or selling after breaking support?
3) What to do at such a time?
The biggest reason for this is the haste made by a retail trader. One should never enter the trade directly after resistance or support break. Obviously, that is the resistance level and at the time of breaking there, the stock will come below it many times and then try to come above it.
So, at such times, the investor should be patient and understand the strength of the buyer or seller with the help of candle formation.
If I talk about most retail traders, then their habit is that they do not think at the time of entry and start thinking after the entry is made.
As soon as they see that a long green candle is being formed on the chart, they will jump into the trade. But the formation of a green candle on the chart is not a sign of buying.
So if you also have a problem, then make some changes in your trade system as per the image given.
1) On resistance breakout.
2) On support breakdown.
Hope the post will be useful for you.
Thank you
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