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Is stop losses so important?

Do you really need safety stop losses in trading? How about not having seat belts in cars?

Before we explain, here is a horrendous example of how my friend traded the swiss franc crisis, that resulted in MORE THAN 10% drop in value in 4 shocking hours!

[Picture of USDCHF with projected losses ]

This happened when HE WAS IN THE BATHROOM, which turned out to be the most expensive dump he ever took.

These events can happen any time, in fact the swiss currency crisis happened on a slow news day. While the swiss loss was a “once every 50 years” event, there are big events that will have the potential to unexpectedly wipe out profit.

The biggest argument to stop losses are the following:

I will lose money because there could be a better position.

I ‘set my own mental limit’

My brokers can see my stop losses!

The good part:

If you believe in ‘mental limits’, just set an emergency stop loss like way below your mental limit, that wait, you will never be trapped. I can’t help your broker mindset, but it certainly helps that you get a better broker that have consistent prices. My broker did not stop me out despite being almost 0.5-1 pip away from the stop loss!

Newbies: Of course for people pretending to understand the article

For those who don’t know what is stop loss, seriously… STOP RIGHT THERE!

A stop loss is just a price designed to automatically close a sell/buy position (Usually when you are losing money, hence the name). If you don’t have a stop loss… You may lose a lot (or even all!) of your money in case of a big event (US Presidental Elections etc)

November 28, 2016

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