One of the biggest mistakes traders make is using rigid stop losses in volatile or news-driven markets. If you aren’t careful, those stops will take you out of perfectly good trades…
Not because you were wrong, but because randomness or headlines triggered the loss.
A great example of this just played out with Tesla (TSLA). Let me show you exactly what happened and why I manage stops differently.
A Strong Setup Gets Hit With Randomness
A couple of days ago, I flagged Tesla as a good-looking trade. The gamma structure looked strong. The technicals were solid. The Maverick system liked it. But I didn’t send it as an official alert because the options were too expensive.
Then, seemingly out of nowhere, Elon Musk and Donald Trump got into a very public spat. The stock tanked. If you had a hard stop in place, you got stopped out right there — taking a huge loss.
But look what happened next. Tesla quickly recovered off the lows and broke back above the 200-day moving average, almost fully recovered to where it was before that news hit.
Why I Avoid Hard Stops in This Environment
This is why I am very careful about stops right now. We are still in a news-driven environment. Even though it’s better than it was, you can still get chopped out by randomness — just like we saw with Tesla.
I have no problem taking a loss if I am wrong on the trade — losses are a natural part of this.
If the thesis doesn’t play out, that’s fine. But I do not want to lose because of noise. I do not want to lock in a loss on a perfectly good setup that was temporarily derailed by an unpredictable headline.
The only way to truly avoid headline risk is not to trade — and I have done that at times when the market was too crazy. But if I’m going to trade, I want to be very thoughtful about how I manage stops.
I’d rather use technical invalidation points — places where my trade thesis is proven wrong — not arbitrary levels that can be triggered by a random tweet.
Tesla is a perfect example of why this matters. If you had a mechanical stop in place, you lost. If you managed it based on your thesis and technicals, you are still in the game — and you might be sitting on a nice recovery.
That’s the kind of trade management I will continue to use — and why I teach it the way I do. It saves good trades from getting killed by bad randomness.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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