There are many resources claiming that using stop loss is absolutely crucial part of trading. There are many anonymous online sources arguing that profitable trading without stop loss is not even possible, and not using stop loss automatically equals gambling.
Also most of the non regulated forex brokers are claiming that you must use stop loss to be profitable ( Interestingly enough, they have no benefit in any trader being profitable- quite the opposite).
Stop loss is therefore often seen as only reasonable way to manage loss on forex and only way to be profitable long term.
Stop loss is supposed to protect traders account from ever growing loss, by accepting small losses gladly and often. By using stop loss, even novice should be able to profit on small account – because he limits the risk.
However my experience regarding stop loss on forex has been a complete opposite (same as lot of successful traders).And at this point I would like to share it.
I have rarely seen trading strategy using stop loss to be long term profitable. On the other hands all the excellent traders I know are using different methods to handle the loss than basic stop loss.
As with everything. There is a price to pay and prize to gain, when trading without stop loss.
Benefits and cons of no stop loss trading:
Benefits of not using stop loss on forex.
- If you are not using stop loss, you are not vulnerable to chaotic market movements that are often triggering STOP loss orders, even if you are fundamentally correct in guessing direction of price movement. If you have sound money management, you can still be profitable even if you hold a floating -20 000 pips loss.
- After the trade gets in loss, nothing is truly lost. Not using stop loss gives you the ability to manoeuvre by timing, hedging and averaging. There is almost an infinite number possibilities on how to hande a trade to minimise loss or even to turn it into the profit. If you know what are you doing.You have the experience and self controll.But also the ability to always manoeuvre and use your expertise is absolutely priceless, and once you get successful not using SL would never go back to using stop loss.
- By reaching certain effectively level in your entry and exit, you will be able to constantly increase account balance, which can further help you to survive occurring drawdown.
- You will be trading to win.This brings certain psychological benefits and lowers the stress levels most of the time. One thing you will learn that only the only thing that is truly dangerous thing when trading without stop loss, is being under capitalised.
Cons of trading without stop loss.
- Most of the times floating drawdown will be present on account with no stop loss policy. This will make harder to estimate how much of profits can trader withdraw, or when is the time to increase position size.
- There is a possibility to be caught in super trend, trend that lasts for months without any significant correction. trader will have to work hard with hedging and be extremely precise with counter trend positions. Even despite his best efforts he may be caught in last hedging order.If you decide to use averaging there is significant amount of capital that is required to be ready for such a occurrence.
- If you are lacking a precision in your entry and exit timing, not using stop loss will be terrible for you. At the end you will end up in even more complicated position.
- Trading while not using stop loss, does not equal never losing. It simply means using different options to manage loss.
Trading without stop loss in unjustly considered to be more dangerous then trading with it. It is just another style to profit on forex, that holds many benefits over so called ,,safer,, forex strategies utilising stop loss.
Taking frequent loss is actually not much safer. Simple act of using stop loss doesn't make strategy better, or profitable.Often times market changes and signal that has worked for trader well will not be valid anymore. At that point you are advised not to brake your rules and follow your system even if that means taking loss after loss forever
Until next time
M