The major reason why suicide traders don’t want to use stop loss – part two


Master Trader
Apr 17, 2013

“Successful Trading Is Not About Being Right.” – VTI

What is your tolerance for pain? Consider the following scenario. You have 10% of your account balance on the line. For the past two days, prices have been going in the direction you had anticipated, but today, an announcement was made that caused a market move that caused all your profits to be wiped out in an hour. What will you do? See if prices will move back to where you are okay again? At times like these, it is useful to have a clearly defined trading plan with a specific exit strategy.

Trading is inherently uncertain. You never know exactly what will happen next. That’s what makes the business exciting to some traders but nerve wracking to others. How you handle adverse events that make prices move against you depends on your personality. The best way to protect your capital is to use protective stops. When formulating your trading plan, you must decide how much pain you can tolerate. How much money can you lose before you have to exit the trade? You can set this exit point as a formal stop loss, you can use the automatic settings on your trading platform to set a stop, or you can use a mental stop (not recommended).

The problem with a formal stop loss procedure, whether it is a formal order or an automatic setting on your trading platform, is that a transitory change in price can ‘stop you out.’ if the placement of your stop loss does not adequately account for volatility. It’s hard to know how far a stock may move and a temporary drop can ruin your trading plan when a protective stop is not set properly. Mental stops may be more useful, but you run the risk of not being able to exercise your mental stop (think heart attack, nervous breakdown, stroke, personal emergency, computer failure, etc.). You can decide how far a stock price must move against you before you will liquidate the position. When prices reach the exit point, you can decide whether the low price is transitory or represents a significant change in trend. You can then exit the trade.

This all sounds good in theory, but depending on your personality, you may not be able to carry out this strategy. If you have trouble controlling your emotions and you use a mental stop, for example, you may have trouble closing the trade when it reaches your exit point. Some people panic and out of fear don’t close their position when their mental stop is reached. These people may need to impose the proper amount of discipline on their trading actions by using an electronic stop or a formal stop-loss order.

Minimizing trading losses is the hallmark of successful trading, but not all traders are equal when it comes to their ability to trade decisively under strain. If you want to trade profitably, you have to work around your personality. If you are cool headed, disciplined, and are willing to take the risk even under the most stressful conditions, you can use mental stops to protect your capital. But if you are easily shaken by choppy market action, you might want to use electronic, automatic stops to protect yourself. Whatever you do, however, minimize losses as much as possible. It’s the only way to trade profitably in the long run.

Author: Joe Ross

The article is ended with 3 quotes below:

“Getting out of trades too early with tiny profits very often is a sure road to bankruptcy. Sure it feels good to take some off the table right away…but it’s hardly ever successful in the long run.” - Marco Mayer

“To make money out of these still requires good management. It is always challenging to see some traders make money from a trade while some traders lose money from the very same trade.” – Joe Ross

“Don’t let those losses lead to mindset traps that can stop you from taking the next trade. Change the way you think about your loss, and you’ll regain your motivation. I guarantee it.” – Louise Bedford



Aug 15, 2018
Thank you for such interesting article.

By the way, mental stops sometimes much better than stop orders. For example, those who trade stocks overnight have a rule:never exit trade during first 30 minutes, even if the price is below your stop. Such movement could be caused by situation with S&P, so if you could not watch the numbers - go for a walk. If you have free BP and list of interesting stocks, you can get some of them at very good prices with short stop.
Of course such approach is for swing traders, but not for daytraders.

Ary Barroso

Active Trader
Jul 9, 2017
Basically, trading without stop loss tool means, you are taking 100% risk reward ratio in your per trade position. It looks unrealistic!


Active Trader
Feb 27, 2014
For nearly 15 years I always traded with a stop loss. With both manual trading and using my EA. I lost more than I won and almost gave forex trading away. But did spend a lot of times studying the charts and mulling things over.

So now I trade without stop loss, and am profitable once again. But with provisos.

Only trade pairs that have a positive swap for either Buy or Sell. If Sell, only trade that pair when price is in the upper half of its multi-year price range. Reverse for Buys. Set profit targets and use trailing stops once in profit for at least a breakeven close. Some trades will go for months, in a loss but always accumulating small daily swap profits. Eg I recently closed out one trade from November that was still in loss with price struggling to get there, but I was able to close it with a small profit because of the accumulated swap profits.

And of course trade with lot sizing relative to size of account - there will be DDs to navigate. But by trading only swap positive there is no problem hanging onto losing positions for any length of time. Just ensure you always have enough free margin.