How Important Stop loss orders?

Trading Discussion
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Stop-loss orders are placed by traders either to limit risk or to protect a portion of existing profits in a trading position. Placing a stop-loss order is ordinarily offered as an option through a trading platform whenever a trade is placed, and it can be modified at any time. A stop-loss order effectively activates a market order once a price threshold is triggered.
Traders customarily place stop-loss orders when they initiate trades. Initially, stop-loss orders are used to put a limit on potential losses from the trade. For example, a forex trader might enter an order to buy EUR/USD at 1.1500, along with a stop-loss order placed at 1.1485. This limits the trader’s risk of loss on the trade to 15 pips.

one question have, which is, Stop-loss order: should I use?

Are critical for a multitude of reasons, but it can really be boiled down to one thing: we can never see the future. Regardless of how strong the setup might be, or how much information might be pointing in the same direction – future currency prices are unknown to the market, and each trade is a risk.

traders actually do win in many currency pairs the majority of the time.

Lately I’ve read few opinions that using stop losses is bad. I am not going to fight with everybody here. If some pro trader thinks that stop losses are not necessary then it is his choice. If he makes money, that is good. But if you are a new investor, struggling to close a year with a profit, than using stop losses is necessary.

Let’s say it clear and loud: stop losses are not perfect. It is not something that will make you rich or profitable trader. It is also not something 100% accurate. You set your stop losses and your stop losses are as good as good trader are you.

Stop orders are used to limit your losses. Everyone has losses from time to time, but what really affects the bottom line is the size of your losses and how you manage them. Before you even enter a trade, you should already have an idea of where you want to exit your position should the market turn against it. One of the most effective ways of limiting your losses is through a pre-determined stop order, which is commonly referred to as a stop-loss. If you have a long position on, say the USD/CHF, you will want the pair to rise in value. In order to avoid the possibility of chalking up uncontrolled losses, you can place a stop-sell order at a certain price so that your position will automatically be closed out when that price is reached. A short position will have a stop-buy order instead.

Stop-loss orders are a critical money management tool for traders, but they do not provide an absolute guarantee against loss. If a market gaps below a trader’s stop-loss order at the market open, the order will be filled near the opening price, even if that price is far below the specified stop-loss level.

So this is my opening, what you think about it?

2 Likes
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I think that stop losses should placed taking into account current volatility. This is especially important for short-term scalping orders because for example high volatility will cause frequent stop loss triggering which can be frustrating. Volatility can be measured looking at ATR indicator value

3

How you will manage transaction if every trade will have different value in pips?

4

It is very important to reduce the loss.

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I think you have understood very well the purpose of setting a stop loss. However, it is not used in every circumstance by every trader. If you are going to stick to your screen, without interruption, just try in a demo account to set an entry without a SL or TP and just observe the price action. I did this some years ago and spent hour after hour staring at the screen. For sure you get a “feel” for the volatility but as another has already said you can get an idea of that observing the ATR and whether it has recently been static or erratic. In fact, many traders believe you should set your stop loss as a multiple of the current ATR for whatever timeframe you are trading. But if you are working a live account, or intent to step away from the screen for a minute (where you could be distracted enough to forget you are in a live naked trade) that is not recommended.

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My trades are incomplete without stop loss. While limiting my losses, it gives me the confidence to trade in different market conditions.