Importance of stop loss placement in forex trading.

[asiaforexmentor1]

FOREX TRADING: IMPORTANCE OF STOP LOSS PLACEMENT



A lot of traders do not believe in stop loss placement.
Some believe in mental stop loss placement. meaning that when they feel that a trade is not going their way, they will then cut it off.
That is so terribly wrong. Stop loss placement is one of the most crucial key if you want to make forex trading profitable.
Another mistake traders make is that they shift their stop loss. They shift it backwards, thinking that the trade will just go back a little more and will come back their way. And sure enough, most of the time, they took more losses than they would have if they stayed on their initial stop loss.
In the chart above, is an example of the importance of stop loss placement.
Usd chf h4
In the highlighted box, thats a pin bar. When some guys see this pin, they will naturally take it down and the ideal place for their stop loss is the horizontal line in orange that is drawn.
Scenario A) if the trader did not place a stop loss, or a mental stop loss – look at how high the usd chf pair went upwards. Their account will be blown or had a huge huge loss.
Scenario B) Trader shifted their stop loss backwards from the initial orange line thinking that the trade will go back down. They would have taken a huge loss as the move went up terribly fast and would have gotten a big blow to their account
Scenario C) Trader sticked to their initial stop loss, they would have just gotten a standard loss of the % risked in their account, based on their money management. And this is just one of the trades among the plenty, therefore this loss is not a big deal.
I hope you guys can see the importance of placing and sticking to your stop loss. Or else your account will be blown before you know it.
Ezekiel Chew
Asia #1 Forex Mentor

[raybenz1983]

It is very good post about importance of stop loss placement in Forex trading.Mental stop loss is very terrible and wrong.

[Alchemist]

I couldn't agree more, a stop loss is your safety net. By using mental stops you are increasing your risk. Furthermore, if you use a mental stop you are at the mercy of technical issues. What if your computer crashes or you lose your internet connection?

[pon]

I completely agree that you should not keep changing your mental stop loss, but i do not agree on entering a stop loss. Looking at 13:00 H4, for the 9th august 2010 as per this chart set up, you see clearly that the previous week was a double bottom at 161.8 level, clearly signalling a potential reversal to 0.0 or 9.0 or 100.0. Moreover the preceding candles were far away from the MAs, so they were retracing to meet up with the MAs. Prices often come back or move sidewards to meet the MAs after a big fall or rise. You can observe the same in weekly chart also.



In daily chart we see that the prices were actually moving sidewards on a previous support level, the low for the month of April for close to three weeks, in fact the whole month of July.

Best of all, if you look at H1, you clearly see that the yellow line was above the black clearly signalling a buy from the start of the day. Even the 13:00 H4 candle went up only on the 4th 1 hour candle meaning, the 16:00 candle in H1. (time varies between brokers). So you could have had 15 hours of prior intimation that the prices are about to shoot up.

The low zigzag in H1 and H4 clearly tell us that we should enter buy than entering a sell with stop loss. BUY LOW! SELL HIGH!

[Alchemist]

I'm sorry, I don't understand what you're saying.

[pon]

I am saying, if we understand the trend direction with the right combination of tools, there is no need to use stop loss.

There are clear signals before any price spike, always. And prices do not move randomly at all.

[Enivid]

Originally Posted by pon

There are clear signals before any price spike, always. And prices do not move randomly at all.

I just couldn't agree less.

[pon]

An example of how accurate the price movements can be?.

Can we predict this? NO.

Can we profit from it? YES.

Like the days on 2nd, 4th and 9th May, when it missed touching a line, it is a signal that it will retrace to a certain complementary price level and come back to close this gap. So for the 9th, it could be 1626 level as i have explained in GOLD TODAY thread.

[SebastianBermudes]

t didn't "take aim" at your stop loss. It took aim at a major resistance level which acts as a magnet and happened to be where you choose (poorly) to place your stop

[Alchemist]

Originally Posted by pon

I am saying, if we understand the trend direction with the right combination of tools, there is no need to use stop loss.

There are clear signals before any price spike, always. And prices do not move randomly at all.

If you understand the trend direction and use the right combination of tools, you may have a high probability trade. However price can still move against you, and it can do so unexpectedly. Trading is about probabilities rather than certainties, and every trader has losses. You need that safety net.