I agree with you Lexys, at least with my broker I can set my trades to automatically include a stop level so it doesn’t even need planning. It can be set to the maximum level that I would wish to lose on a trade in the event of an unexpected move.
I am not sure, but I could also imagine that having had a stop present could help in negotiating with a broker in the rare event of a complete gap jump in price like with the infamous CHF move.
It is insurance that costs nothing and gives some peace of mind whilst letting one concentrate on the real matter - the actual trade itself
“Disaster-stop” cost nothing. LOL. This is a laugh.
A thunderstorm spike can kill your trade just like that.
This can be argue, but arguing serves no purpose.
Do whatever works.
Afterall, we are all responsible solely and totally for our own trading decisions.
Certainly, a huge spike can hit a deep-placed stop, but without that stop it could go even further and even destroy an account totally. And even if it doesn’t and the trade is left in a deep loss then it might prevent a trader from trading further positions until sufficient equity is regained, if at all. Such a situation could exist for a long time trying to rescue such a position. Not only could this cause severe psychological pressures but it could also deny the trader the opportunity of gaining on other trades in the meantime.
In the overall picture, a loss from a stop could be recovered in successive trades quicker and more effectively than just waiting for the original trade to return to profit - which could be months if a long trend follows from the spike.
It is good that various views and opinions are expressed over these matters, even if they are contradictory - that is surely the purpose of a good forum - and that’s maybe how we all decide how we can “Do whatever works”
I don’t think it is just a question of worrying about margin calls, I think it is more a question of managing one’s risk. If one is only looking for, say, 50 pips on a particular trade, then is it sensible to risk losing hundred’s of pips from the same trade through not having a stop level? OK, if the trade remains open, one can add more capital to the account …and keep adding for as long as it continues to go against us, but isn’t that getting totally out of proportion with the original intention of the trade?
Is it not, at least sometimes, better to take the loss at a pre-determined acceptable level and move on to the next trade free of any baggage from a deep in the red position?
But I guess this is as much a question of personality as about money. I know I would never have the mental strength to carry a bad position from one day to another. To other, stronger personalities, this may not even be a problem!
In this world of chaos, use whatever strategy that fits you. In the end, it is about making profits.
If losing some allows you to make more money than so be it.
For me, I rather carry my trades because I trade with two benefits on my side. One, I trade with the trend.
And two, I trade with positive interest swap.
This means my account principal is always increasing from the interest alone. And if the trade goes my way, I make even more. If trade does not go my way, I have already accounted for it and will trade more whenever appropriate. I don’t just add or compount to my trades haphazardly from panic or emotional fear or whatever.
For example, I believe people are shorting AUDUSD right now. One bad thing, they ain’t accumulating interest. Just because Australia reduced their interest rates a few decimals does not mean we panic and start shorting. Anyhow, all the SHORTS out there will eventually exhaust and give me the advantage of earning interest and BUYING at real good low price.
NOTE: I trade to win and to profit. I don’t like the concept of losing some and then gaining some because eventually your focus will be on recovering losses instead of profiting.
There are two very relevant points here when considering the question of using stops (and we should remember that two very different stop issues have been raised: stops as part of normal trade management combined with a target level and an R/R equation, and stops used as a safety net/damage limitation to guard against exceptional losses arising from sudden, huge moves - these are very different things).
The first issue arising from Charlyher’s post is the relevance of what kind of trader one is. Most traders will have spent much time selecting and designing and developing a trading approach that suits them best. If a trader works in short time frames and intraday markets then to inherit a deep-loss position arising from a combination of no stops and a surprise major move would throw him into a long-term positional trade management which he is unfamiliar with and unprepared for and has no stratagy with which to manage it. The loss has already occurred whether it is closed from a distant stoploss hit or ongoing with a severe equity dent, and the question now is how that trader is going to rise from it. Is it better for the trader to cut his losses and continue using his familiar trading methods or to have to change his entire style and methods to handle an unfamiliar long-term trading environment that was never his intention in the first place? Of course, a trader who naturally trades long-term and includes positive carry is better equipped to keep such a position in his portfolio. Conclusion: using stops is also very much a question of what type of trading one is doing.
The second point is the very underrated issue of pyschology in trading. I think Charlyher is right in that, following an abnormal loss, one can very often become more obsessed with recovering that loss than trading for profit, which leads to premature profit-taking, irrational trade setups, oversizing, overtrading and so on. The result of this is that future trading profitability suffers and even more losses might be sustained. Conclusion: it is perhaps better to use stops as a normal component of a trading decision since they are based on an overall anticipated proportion of losses which is intrinisic to the deliberately selected risk/reward ratio being applied. This means losses are limited to an identified and anticipated level and therefore do not create negative pychological pressures on the trader who can then forget it and move on to the next trade. The correct mindset is a very crucial factor in forex trading and any negative baggage should be avoided as a priority. If using stops helps in creating and preserving the positive mindset (as well as facilitating measurement of one’s trading strategy results) then they should be always used.
As you will notice in your thread that there are a lot of traders with conflicting ideas. Bottom line, it really all depends on what type of Trader you are, and where your comfort zone lies. Your Trading Plan will guide you there. A Scalper must stay in front of his screen for quick decisions of choosing a currency pair and whether to buy or sell, The long term trader will have to set his stops and profit targets at the desired level of his risk management. You might want to ask yourself this…would Warren Buffet or a professional working day trader set stop losses on a million dollar account? Or will their job require them to glue their eyes on several screens while checking for eventful Forex news, the ticker tape, with various charts and help of automated robots for alerts and warnings.
There is a rumor going on that some Forex brokers have a Stop Loss crawler built into their software whose main function is to find small stop losses and eat them up before continuing the main trend. Kinda like the Pac-Man game. Imagine all the income derived from the stop losses from small account speculators who base their trades more on fear than greed. It’s massive !!
I had not enough time to read through the whole thread but I want to add my opinion to it.
You need to have some way to cut your losses. You can use stop losses or you can use opening positions into oposite direction at some level. If you do not use stop losses or do not manage to cut losses at some point and your account is not growing there is a big risk you get margin called if your position is too big. Then the margin call becomes your ultimate stop loss.
I do not use stop losses in my mid to long term trades because I setup my positions according my account size and there is plenty of time to reconsider my positioning over time if my orders are open days and weeks. I can close them anytime, I can add to them and I can open position in opposite direction if there is a valid setup. But if I trade short term even scalping without clear stop loss level it can be a disaster because there I go in with high leverage to get fast profits and I can have the same amount of loss in the same time. So for me everyting depends on the leverage I currently use and that is a part of risk management I have. But I always use stop losses after the price makes a break even to set the trade risk free and later lock my profits.
It is up to a trader what he thinks better to use stop loss while he is in front of computer. Stop loss actually is a way to mange account if we are not good in risk management. It saves us from unexpected loss can occur any time even we are watching trades.
