TRADING FOREX WITHOUT A STOP-LOSS ORDER

Why do you think they are called stop-loss orders?

Because that is the point you want to stop losing.  There is no way to adequately communicate how important it is to pre-select, in advance, exactly where you will liquidate a losing trade if the market goes against you.  There is nothing you could say or do, no argument you could ever make, that would justify, even remotely, trading FOREX without a safety-net on your equity.

I have heard all the opinions, rationalisations, justifications from traders who say that they don’t need to use stops, they have “mental” stops, they will “just get out” etc.  I have heard all the sob-stories from these same traders when they have to clean out their desk and find another career; “if only I had placed a stop at least I would still be in the game” I’m as serious as a heart-attack.

If you place a trade without a stop-loss order to protect yourself you WILL be in that group of traders sooner or later.  It is important to constantly remind yourself that trading is a risky environment.  Because it is simply not realistic to think that you will have 100% winning trades it is equally important to limit the risk exposure on any one trade.  You have to let the laws of probabilities work for you and you have to control your risk to do that.

When you place a trade, it is completely possible that something in the market might change and that change might take the price against you to places you personally just never expected.  If you are still in a trade at that point, your loss is probably a significant amount of your balance.  If you were trading too large to begin with you might be close to getting wiped out.  All of that is prevented by placing a stop-loss order. Additionally, getting stopped out of a losing trade frees up both capital and mental resources to look for the next potential trade.

You are going to have both winning and losing trades.  Get out of your losers quickly and confidently.  Don’t let the markets take more from you than is reasonable to find out if you are in a position to profit.  It only takes ONE trade that runs hard against you to wipe you out if you continue holding it.  Use stop-loss orders and never break this rule, always use stop-loss orders on every trade.  There is nothing more to say on the subject.  Make this mistake and you’re out.

HOW TO MAKE THIS MISTAKE WORSE: There is no way to make it worse. This is as bad as it gets in this business.

SOLUTION: Simply place a stop-loss order on each and every trade. When you click the mouse to get in; follow that order IMMEADIATLY with a stop-loss order.

Tags: Forex, forex strategies, forex trading

This entry was posted on November 7, 2011 at 9:41 am and is filed under Trades. You can follow any responses to this entry through the RSS 2.0 feed.