A 1971 party game explains why you moved your stop

📉 Four stops in five days, and the two that hurt were the same trade twice

💵 A 1971 auction game that explains why you move a stop

📊 Friday's two jobs reports went opposite ways and took the loonie apart

✅ One thing worth doing today, and it takes about four minutes

→ S&P 500 · 7,718.60 · +0.09% on the week

→ Nasdaq · 29,489.99 · +0.06% Friday

→ Dow · 53,414.25 · −0.51% Friday

→ VIX · 14.32 · −5.8%

→ Fear & Greed · 42, Fear · was 52 and Neutral a week ago

The trade's gone against you. The stop is sitting right where you put it. You're looking at it thinking that's a bit tight actually.

You haven't decided to move it. You're just looking at it.

In 1971 a Yale economist called Martin Shubik published three pages in the Journal of Conflict Resolution describing a party game. You auction a one dollar bill. Highest bidder wins the dollar. Then he adds one line.

The second highest bidder also pays their bid, and gets nothing.

That's the whole modification, and people bid past a dollar for a dollar while understanding the arithmetic perfectly well.

Say you're at 90 cents and someone bids 95. If it stops there you pay 90 cents for nothing. So you bid a dollar and five, because losing five cents beats losing ninety. The other person runs the same sum. So does everyone watching.

Nobody made an irrational decision. The game just changed what they were playing for.

Somewhere in that auction the bidder stops trying to win a dollar and starts trying not to pay for nothing. Same person, same money, different game, and nobody announces the switch.

That switch is what happens when you move a stop. You put it where the market would be telling you that you're wrong, which is a decision about the market. Slide it down and you're deciding about the loss instead. Trying not to pay for nothing.

🎯 The stop: you move it, the market takes it anyway, and a one unit loss becomes a three unit loss. You never decided to risk three, you decided twice to risk a bit more than was already on the table.

📈 The size: you're down, so you add, because the average improves and now it only needs to come back half as far. Every add is defensible alone. The book you end up with is not one you'd have opened on purpose.

💬 The story: you've been wrong for three weeks and you've said out loud that you're not wrong yet. Now the bid isn't money, it's your credibility, and it goes up every day you hold.

I publish my record, so I find out in front of people when I've been sloppy with it. Earlier this year I had a losing run and I said it was eight. Eight sounds like something you survived. Then I counted. It was seven.

I'd escalated my own losing streak by one, in public, without checking, because the bigger number made the point better. Nobody made me. And at my hit rate the longest run you'd expect is a bit over five, so seven was already above expectation. The real number was more interesting than the one I made up.

My own week, since it's the same mechanic.

I was long EUR/CAD and long USD/CAD. Two rows on the board, two lots of risk, and I sized them as two trades.

They aren't two trades. EUR/CAD long is long euro, short Canadian dollar. USD/CAD long is long US dollar, short Canadian dollar. The euro leg and the dollar leg did almost nothing all week. The only leg that mattered was the one they both had.

So when the loonie firmed up mid-week, one move took both stops, at the same time, for the same reason. I call that the shared leg.

Then Friday's two jobs reports landed. The US added 162,000 against 53,000 expected. Canada lost 42,000 against a forecast gain of 15,000. The loonie got hit from both sides inside the same minute and both pairs came most of the way back, a day and a bit after I was out of them.

The stop did its job. The stop was also why I wasn't there when it went. Both are true and there's no clever way round it.

Open your current positions and write down what each one is actually betting on, in one word.

Not the ticker. The bet. Two long tech names are one bet on rates. A long gold miner and long gold is one bet. Two shorts on the same currency is one bet, which is the mistake I just paid for.

If the same word shows up twice, you're carrying that risk twice, and you almost certainly sized it as if you weren't.

Takes about four minutes and it's the only thing in this email I'd insist on.

That's this week. Both Canadian dollar longs were published with the entry and the stop printed before the week started, both got hit, and both are on the record page with the numbers.

This free email is roughly weekly and it teaches the mechanics. The paid edition of Inside the Trade does something different: the individual names and the levels behind them, published before the open, plus the live board that updates as things trigger and come off.

$29 a month, about 95c a day. Or $199 for the year against a $249 list, about 55c a day, which saves you $149 against paying monthly. Cancel whenever you want.

→ tradedesk.rbtrading.site

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Educational analysis, not financial advice. Figures describe closed trades from one account, not a complete trading history. Past performance is not indicative of future results.