This may sound like a ridiculous question, and I may get the money management answers which i totally get, but I wanted to know, does all experienced traders add a stop loss even if they are inferno of their screen seeing whats going on and they know in their mind where they want to cut their losses?
When you KNOW what you are doing and you KNOW that you act on losses like a robot, you can work without (although there is a risk of glitches in the data feed). The point is that your platform is much better disciplined to execute a stoploss than your brain and hand.So you can look at the trade, but when you chicken out in cutting your losses you are wasting your time behind the screen.
So what you’re saying is in reality it’s easier and more efficient for the machine to do it. You set it to lose £200 and you’ll lose £200. Leave it up to us mere mortals, and we could lose £220 in a split second…
That to, but there is a higher risk that you day dream that the price will return after that drop and you stay in your trade hoping for that to happen. And sometimes it may return and you will be happy as a child, but the rally can speed up leaving you with a quickly increasing loss that can ruin your account.
The saying goes: Cut your losses and let your profits run. In practice a lot of manual traders act like this: Cut your profits and let your losses run.
As an answer, one could ask the
following: would we cycle without brakes?
Some experienced riders do, but…
I’ve now got a great answer PLUS I’ve leant something new about cycling laws…Brilliant, cheers dude!
At first I keep using SL. However, I have an idea to trade without it. Let say I want to sell GBPUSD, just place the trade sell stop but then at the “stop loss” position, I will put buy stop command.
There is a very little number of traders who are trading without stop losses, so no matter you are in front your computer or not you should use them because stop losses should be a part of your trading strategy which need to be followed 100% all the time.
There are stops which are an integral part of the trade set up itself which can be either physical or mental, that is a personal choice. But if the trade stop is kept as a mental level requiring manual execution then there should also be deep stops placed under or over the price as protection against unexpected problems disconnecting you from your broker.
It is possible for storm damage to disrupt communications for many hours, PC’s can break, sudden illness or accident can occur any time, on very rare occasions there can even be huge movements in price that pass your mental stop before you even register it. This kind of deep stop is never intended to be hit in normal trading as it is well beyond the price range that your trade is anticipating, but it is a safety net, damage limitation, stop in the event of the unexpected.
Anything can happen anytime. Also, people get irrational when they’re gluing their eyes in front of the chart. Might as well make the computer commit with the SL instead of the trader. Holding a losing trade is very bad for a trader’s mental condition.
You should know where your stop loss and take profit will be even before entering a trade.
If you are afraid of your stop loss being touched too soon then odds are your stop loss is too tight…
Its not about fears actually. But about volatility. any stop loss can be triggered with wide enough swings
Depends of where you place your SL.
If it’s behind a structure and it is filled it’s a good sign because once a structure is broken the price thends to go in the direction of the broken structure so you cut your losses.
Concerning the extreme volatility periods those happen (not often however) and you can’t really do anything about it, those are anomalies of the market.
If you place a too wide SL your Risk Reward ratio will be miserable.
Thanks guy…Very helpful. So really the best mindset to have is to almost say ‘How much am I prepared to lose on this trade without getting upset’ Figure that out FIRST, and use that as part of where you’d place your loss. I was just curious really to know if the pro’s use them on every trade they enter.
Depends of what you are trading. In penny stocks we don’t use them because this shows them on the level 2 and market makers can chase them.
If what you are trading is liquid then yes you should place them always.
PS: When you begin don’t let your trades overnight for stocks and don’t let your trades over week ends for forex unless you are a position trader. Gaps can destroy a stock trader.
What you should do is:
- Build your own strategy (Writing a trading plan explaining entries, exits, money management, risk management)
- Backtest your strategy
- Forward test in on a demo account
- Go live with a small account and scale when you are confident.
Before entering a trade you should always know your risk reward ratio, where you will place a stop loss and where you will place a take profit.
So when you’ll be trading you will know that only two things will happen, your SL being hit or your TP being hit. No emotions, get out of the screen if needed.
I would be a little careful about simply working out how much you are prepared to lose. The stop should always be placed at a sensible position with respect to your trade. This usually means identifying the level that, if reached, would negate the reasons why you took the trade. For example, a close below a recent high/low, MA cross, and so on.
It is wise to know your maximum monetary loss tolerance per trade and then you can compare that with the most suitable and sensible stoploss location. If the stoploss value then exceeds your tolerance level then ignore the trade (or wait for a pullback that brings it to within your tolerance) - there is always another trade around the corner.
I do it a little different more like the way Manxx explains. I agree with your first part. Find out how much you are prepared to lose. Like 1% or 2% from your account. Second find the logical place for your SL. With this information you can calculate your position size, how many Lots you will trade. Before that you should check if the R:R is good enough to take the trade at all
[QUOTE=“TC Holland;759316”] Second find the logical place for your SL. [/QUOTE]
This is where most of us struggle.
good post Manxx,
i agree with your stop losses but might sligthly different i would recoment that people calculate their position suiting to their stop loss. like you said, if the trade and the stop loss below a certain crucial point exceeds the maximum 1-2% a trader wants to loose then he can always alter the third number of the equation which is position size. Instead of doing €50/Pip-move he can do €30/pip-move and still take the trade with the wider stop loss and stay below his 1-2% risk management calculation
The struggle is maybe with their ego I take the previous Hi or Low or the Hi or low of a pin bar The struggle start when this is not giving a good RR and greed let me look for an other place