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
Ezekiel, all newbies should take notice of what you are saying. The stop-loss is the ONLY thing you are able to control in a particular trade. You have no control over market direction. You have no control over how far prices will move in your favour. But, you do have total control over how much you might potentially lose if a trade goes bad. ALWAYS USE A STOP-LOSS!
Nice post Ezekiel. 😉 If you had a SL in place, you could have went to the 15m charts after the loss and potentially traded the up-swing if you care to trade against the 4h chart. First rule of not losing all your account, use immediate SL when you enter a trade.
Better is little with the reverent, worshipful fear of the Lord than great and rich treasure and trouble with it. (Proverbs 15:16 Amplified Version)
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