When Stops Betray You

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Well, today was another odd day – – and with all the cross-currents going on, that's no surprise. For a while, it looked like the bulls were putting together a nice counter-trend rally to shake off some of the recent weakness. That totally fell to pieces, and now we're in a no-man's land again, without any clear direction at all.

One pisser for me was my short position in ABC, which got promptly stopped out at the opening bell. I don't mind getting stopped out – after all, that's what stops are for – but this was one of those rare instances where you get pretty much the worst price of the day, and the stock totally reverses in your favor.

This is especially unusual after an earnings report. A stock moving higher or lower or earnings will, in spite of some wiggling around, generally move in a positive or negative duration for the session, with most of the move represented by the initial gap.

In this instance, the stock gapped higher, and it lost that entire gap and moved into a loss for the day. You can imagine how, for a person with a short position that had been taken out, this would be exasperating.

The solution would be much wider stops, but that would probably cause more harm than good. In any event, I just wanted to share this little anecdote that, while I have a firm belief in stops, they can sometimes really screw you over.