Trading Forex Without Stop-Loss?
November 22, 2010
Stop-loss is one of the best invention of the financial trading. At the same time it’s also one of the most cursed thing in Forex — how many times was your stop-loss hit just before the trend reversed in the direction of your position? For many traders stop-loss orders are the reason of depression and despair. Unfortunately, not many of them understand that if they didn’t use stop-loss the results would have been even worse.
Recently, I’ve stumbled upon a ”strategy” promoted by some Nigerian trader on one forum. His idea was quite simple — sell USD/JPY on some pivotal levels and don’t set up a stop-loss. His argument — if you have enough margin you can lose only if USD/JPY goes down to 0.00. In his opinion it’s about 8,300 pips now or if you trade 1 mini lot it’s $1/pip, or $8,300 margin required, which is quite normal for a standard Forex account of $10,000. The problem is that for 1 mini lot of USD/JPY 1 pip isn’t equal to $1 — it depends on the current USD/JPY rate. Using the pip value calculator you can easily see how 1 pip value grows as the USD/JPY rate declines; for example, at USD/JPY = 40.00, 1 mini lot pip is $2.50. Of course, such a huge decline on USD/JPY is improbable, but trading without stop-loss you always risk huge to earn small, which eventually eradicates your capital.
So, what’s your experience trading without stop-loss in Forex?
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