Why should you use a stop loss order?

ProFXManager

Active Trader
Jun 7, 2015
35
1
27
Germany
so sorry, you are not a bond student, therefore you have no access to the original academic study, only the public abstract is available for free, but you can see it is listed as scholarly publication from the bond staff, here a short snippet of the very interesting conclusio:
--
In no case tested does the use of stops either
significantly reduce risk or significantly increase returns.

– both of which should be the primary goals of every
trader.

Many traders may feel uncomfortable with the idea of
not using stops. However, from conducting this
study on a variety of trading systems, one observation is
crystal clear: If a trading strategy has a positive
expectation, then the use of stops will only serve
to degrade performance.

The methodology used within this study can easily be ported
to any individual traders strategy.
In the specific case studied in this paper,
the results suggest that stops degrade long-term
portfolio performance.
--
other scholarly publications:
Developing high frequency foreign exchange trading systems
Designing short term trading systems with artificial neural networks
 
Last edited:

ProFXManager

Active Trader
Jun 7, 2015
35
1
27
Germany

Callagy20

Trader
Jul 24, 2015
46
0
17
I think using stop loss order here is of maximum importance. It is said forex trading is risky but yet, there is a lot the trader could do to manage the risk. Setting stop loss defines the maximum risk an open position is vulnerable to. This way if the market goes against you, the stop loss triggers when market prices get to that negative point you can't afford any more losses.
 

Enivid

Administrator
Staff member
Nov 30, 2008
16,527
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Odessa
www.earnforex.com
thats fine! long time ago i was in contact with the bond staff. should look around for new or updated papers.
The article is superficial at best. There are two serious issues here:

1. The main one is that the author gives no explanation as to why he tests only long entries/exits. As we can see, the ASX200 was in a bullish rally during the period from April 2000 through December 2007:

asx200-april-2000-december-2007.png


Of course, why would we need in a stop-loss to trade long entries in a bullish market?

2. Only two stop-loss techniques are studied. One (money management stop) is a very poor choice - many authors do not recommend using it under any circumstances. The other (ATR) is a sound one, but the author forgets to describe the ATR period used in the test. Support/resistance stop-loss used by many traders (include me) is not studied in this article.
 

ProFXManager

Active Trader
Jun 7, 2015
35
1
27
Germany
You are right, study is not complete, but i think the statement behind is: Ask, test and maintain your sl, is the "old school" sl choice always the right/best choice? Look around and open your minds, maybe there are newer technics available, because sl is always the hard way to realize the loss. candlesticks are used +100 years before moving averages are created, so trading technics must be also improved day by day.
ps: sl means, tp, ts too!
 

garena

Master Trader
Jan 28, 2014
243
5
54
I did trade without setting SL and when market went reserve, it grew into a big loss. No Stop loss is very risky, take an example, EU could move in 200-300 pips a day.
 

eagle

Trader
May 21, 2015
103
1
9
Stop loss is in fact the most important tool that should be used by every trader regard less of his trading method. If a trader is not using stop loss, he is risking his entire account to the market which is a very bad thing to do.
 

wisdom

Newbie
Jul 29, 2015
14
0
2
It is appropriate to use a stop loss order so as to protect your trading account from huge loss while trading .
 
I still believe in stop losses, but not the automatic kind. Rather than using automatic stop losses, I set up price alerts for the securities I bought (and for those I plan to buy). For example, if I buy XYZ stock at $20 per share, I might set a price alert at $19 (5% loss), and also at $25 (25% gain).