Stop loss

Not aimed at you at all Tom… I was just showing Bob (read back up through the thread) which posts I was responding too after being accused of hijacking the thread…

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I’m happy to accuse the swing traders who went broke already of that, too.

You’re right as far as retail trading’s concerned, of course; but most retail traders are losers anyway.

If you look at a successful group of traders, such as “institutional traders” earning fat salaries and fatter bonuses, you’ll actually find a pretty high proportion of scalpers.

But what many people here describe as “scalping” actually has nothing to do with scalping, anyway.


Oh, THAT Bob…

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Yes I realise the everyday use of “scalping” has drifted but that’s the popular use so I’m happy to not be too picky over it.

Of course,m you might say most retail traders go broke whatever they do. But I say they mostly go broke BECAUSE they’re daytrading / scalping.

The article highlights the absolute exposure to the markets that the simple retail trader risks. When an event like this occurs, traders can be left owing more funds than they had available in their accounts, some lose $1000’s… some lose even more.

A Stop Loss won’t save you in a situation like this, nor will any open or close point on an oscillating indicator.

My Bots have equity protection logic built in, so if at any time the position generates 0.7 - 2% drawdown the logic kicks in and gradually reduces the position maintaining the predetermined risk level. But even this will not save against the situation detailed above…

Zero balance account protection (offered by some brokers) is really the only way to minimise losses as long as you have enough margin to comfortably cover your lot sizes in your trading account. A daily/weekly withdrawal regime can be used to keep your account at a predetermined level. So if a situation like the unpegging of the Swiss Franc transpired again, the traders only exposure is their account balance.

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Absolutely - And I think this is the middle ground that we all need to understand, far to often new traders and moderate traders still have the assumption that Stops will be honored within a narrow range. I’ve been at this game since 2008, and the thought of being ‘caught’ on the unfavorable side of a flash crash is always concerning - even if you risk 0.5% or less of your account on a single trade it’s going to wipe you out.

I guess the next question is “what can one do to limit the risk of these black swan events”, or do we just price this into the game of FX speculation and accept. - if anything… food for thought!

When you look at the flash crash mentioned in more detail you would realize that the previous days low was broken in normal trading conditions, therefore a SL placed on this assumption (which is by far the most popular approach when swing or intraday trading) would be honored and a you would have avoided loosing you shirt.

Some people put their stops as you say - others put them below the previous swing low, some below the penultimate prior swing low and still others, outside the current trading range.

Are you saying that ANY stop placed in teh market would have been honoured, or just “selected ones” ?

Not at all, but the previous days low, and previous swing were within or above 1.2250, which according to the below chart had a healthy balance of bid/ask orders - it’s below this point where liquidity becomes intermittent.

Then there is no question of stop -losses “being honoured”

Just a case that “You were lucky to get stopped out before it happened”

Ergo - a stop loss will NOT protect you against catastrophic loss. All it will do is ensure that the broker gets paid when the price breaks the level he can see on the screen - N’est ce pas ?

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Luck really doesn’t come into it, if you’re placing a stop so wide that you are open to the exposure of the flash crash then you need to evaluate the trading approach which you are using.

The only traders/speculators that ‘should’ have been harmed in the above event would have been long term positions, which as logic implies is the minority of retail traders?

This isn’t an opinion, it’s proven in the chart and the report that was issued.

Yes? And this is the point of any SL, regardless of the situation when dealing with a retail MM broker - just like the margin call you would have received.

"harmed " ? - You mean - Longer term traders deserve to get wiped out - because there are less of them ?

And what if the “Flash crash” had taken place at the TOP of the day range ?

I’m not trying to use semantics here.

I’m simply pointing out that longer term traders who tend to use wider stops will have been harmed compared to the contrary. No argument intended, just a discussion.

A valid point, however this never has and doesn’t happen due to market sentiment. In simple terms a flash crash is driven from liquidity, or rather a disorderly array of orders which cant be matched. Therefore the top of a daily range, or even weekly range will be buoyant up to and even below the low of the range in question - I hope this makes sense?

Its when price is rapidly pushed outside of the ‘liquidity range’ [which is equal to the range between the high and low in question + a margin for stops outside of the range] whereby the fall in price accelerates to a point whereby liquidity is thin. This is why when you look at a liquidity report of any flash crash the momentum of the crash [and the likelihood of a stop being honored reduces] is most severe when the low of the range has been broken beyond the point of where the majority of the volume stops are situated. Hence, the place where longer term traders may have there SL because they don’t want to be effected by intraday or weekly spikes in price. A logical assumption to make, I would assume.

If interested in flashes then have a read, a lot of work was put into this report.

Reasonable chance of a recurrence in 2018.

Edit: btw ‘fat finger’ gets a mention but is generally acknowledged as a thing of the past.


Yep, it’s a great report and very insightful to those that want to understand the underlying markets and how they give cause and effect to crashes. I attached the same report to post 70, however few comments on any of the quality info within.

I asked many traders about stop loss and about 80% of 100% don’t use it in trading. I think this is the reason to reflect on those who like to put them to reduce losses.

Let’s say about 90% of traders don’t use stop-losses. Yet we also know about 90% of traders lose. Can these things be correlated?

Describing them as traders is a gross insult.
The majority of punters wrapped around that statistic possess no more sense than they were born with & shouldn’t be let within a country mile of a betting account. In fact judging by the way they treat them I’d be hard pressed to trust them with a basic deposit account.

It’s got very little to do with broker platform features.
Little wonder the regulators are hot on the case.


I’ve read many different opinions, some say that stop loss is a good things and it lets you control risks. Others claim it’s brokers’ way to drain traders’ money. I personally use stop loss regularly and I find it stupid to trade without it.