Why Use Stop Loss in Foreign Exchange Currency (FX) Trading? - The Janet Blair

Why Use Stop Loss in Foreign Exchange Currency (FX) Trading?

In Forex trading, one of the most dangerous mistakes as a beginner trader is trading without using a stop loss. A stop loss is placed in a trade to protect your capital/investment learn how to trade. stop-loss-strategy

Not using a stop loss is like driving a car without insurance. You never know when you will meet an accident and so you need car insurance to protect and save you from having to fork out your own money.

It covers most of the expenses in the event of damage to your vehicle, injury to pedestrians, other drivers or passengers.

 

Very often, beginners and advanced traders fail to use a stop loss as part of the optimum criteria in their trading due to lack of knowledge, ego or overconfident.

They think that placing a stop loss will cost them money and do not want to lose any money if the trade goes against them.  When we see trading promotions, it’s always about winning money and not about losing, and so it is perceived that the trader will always be a winner and has no need to place a stop loss. Not being able to control your emotions or ego will keep you out of the Forex market or in fact any other market that requires a stop loss or capital/investment protection.

Learn to Sell with Stop Loss

Once you have identified which currency you want to Sell e.g. AUDJPY (Australian against the Yen) and where you want to enter the trade, you then quantify your loss by placing a stop loss to protect your capital.  You will be in profit once the market continues in your trade direction.


AUDJPY 15.06.2016 - Trade Plan

Proficient traders know that losing is part of the business and so they are aware of the importance of managing risk.  There are two outcomes in any trade, winning or losing.  No matter how great your strategy or system is, you will lose during your trading career.

Many traders also believe that when the trade goes in the opposite direction, it will come back to start giving profits. This is another danger in trading. A trader may place a stop loss, but move the stop loss further away as they feel it will stop them out and they will lose money they could have won.  Not being committed throughout the duration of a trade whether it goes in your favour or against you can cause extreme emotional trauma.  Again, risk management is important learn how to manage your risk. When you plan your trade, you should know the percentage risk you are prepared to take in order to not move your stop loss because of the fear of losing money.

The only time you should move your stop loss is when a trade has a reasonable profit, and where you can lock in profits if the trade moves in the opposite direction.  As a trader, you need to accept that losing is a part of the trading business. Placing a stop loss is the only way you can protect your capital/investment in the Forex Market, as you should be expecting one of two outcomes.  Despite your strategy, the market has a direction of its own and we do not have any control. With the discipline of placing a stop loss and managing risk appropriately, you won’t undo making a lot of money in the Forex Market.  It will keep you ahead of the game.

Check out my course, learn to trade in 90 days and set the appropriate stop loss!!!

 

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