Stop Loss Order? Why!

Those who regularly observe the forex market witness from time to time a certain price indecisiveness. This is when the price of a currency pair e. g. is used to go up and down for a period of time and is used to hit a certain price level numerous times. In this situation some people might think: Technically speaking trading is very simple. It's not about buying or selling at the right time, it is all about waiting! Waiting - until the trade runs into the profit zone! And one day it certainliy will - they believe.

The funny thing is that it might work a few times – especially when the market goes throught quiet times. But when something big happens once, something that effects the markets in a heavy way, then forex trading without stop loss is technically speaking suicidal. No one should underestimate trends or overestimate his own resources.

If you had bought GBP/CHF in May 2011, you probably – even with a great money stock respectively with only a small number of open positions – would have run out of money at the end of July - the latest. The downward trend of GBP/CHF was spectacular: from 1.65 in May to 1.18 in September! 

So the most important thing to learn from that experience, some poor and stupid people could have made, is... being patient is all right, but being stubborn is not recommendable. So do not let making the wrong trade eat all your money. Set tight stop loss order due to resistance respectively support levels (technical analysis). So if you are wrong and starting to be in the red - that wrong decision won't cost you that much, even if it still will hurt as hell. The good thing about stop loss is that you get the feedback very soon and, more important, you learn to accept losses!

For most people it seems to be a easy lesson to learn: invest only money you can afford to lose. But the lesson with a stop loss order seems to be a hard one. A single trade mustn't hurt you. If you lose a trade, it should not break your financial neck. Not even a series of losses should bring you close to a margin call. And do not believe that you will have enough discipline to wait for a trade to run into the profit zone when it is around 700 pips in minus. This will ruin many of your days until you resign.

Yes, it is right that you should make the forex trading and each single trade matter to you. And that is why I never would start trading with less than 1- or 2 thousand EUR – only if I were highly bored in my life. That is because little money does not matter that much, especially concerning forex trading where dreams are bigger than anywhere else and because with small money you are tempted to accept more easily its loss! And secondly I never would let one trade that runs  in the wrong direction for weeks, take away the fun in my life. Accept the loss!