Good and bad effect of stop loss in the market .
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  • #1 Collapse

    Good and bad effect of stop loss in the market .
    What are the good and bad effect of stop loss in the market. .
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  • #2 Collapse

    The Stop Loss: Advantages and Disadvantages.

    There is no doubt that everything that has advantages also has some disadvantages attached to it. In foreign exchange Market trading, with stop loss is a very good thing but there are some slight challenges we could experience if this is not applied in the right manner.

    What is Stop Loss
    This is a means through which an individual is able to limit the amount of loss he can experience within a given trading opportunity. The stop loss enables you to prevent a drawdown in your trading account which means that no matter how much you lose in the process of trading, you will still have a substantial amount of money to trade with.

    Advantages of Using Stop loss in the forex market.

    1. Keeps You From Unpredictability of the Business.
    Trading with the stop loss will ultimately protect you from the unpredictability in the forex market. If you don't want to have unnecessary losses as a trader, then the stop loss is something you must constantly use.

    2. Enhances Your Trading Strategy.
    If you want to know the true performance of your trading strategy then applying the stop-loss will give you an idea of what to expect. If you don't recognise the stop-loss, it means you will have so much losses to contend with.

    Disadvantages of Using Stop Loss.

    1. Price could take out your stop loss and eventually move in your direction later.
    2. Stop loss is not actually a guarantee that you will not have losses in the forex market. It does not act as a prevention mechanism.

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    • #3 Collapse

      THE NEED FOR USING THE STOP LOSS TOOL

      The risky nature of the forex trading business makes it desirable to use the stop loss tool which helps exit a trade is going in the wrong direction and losses are mounting. The stop loss is usually set along with the trade execution but where that is not possible the trader needs to ensure same is set as soon as the trade has been successfully opened. Any further delay could be hazardous and even negate the usefulness of the stop loss. However as good as the stop loss tool seems to be, some forex traders neglect its use. Of course, using the stop loss has both advantages and disadvantages, but when ones hard-earned live money is involved, one had better appreciate, embrace and use it. Below are the advantages and disadvantages of using the stop loss.

      ADVANTAGES OF USING THE STOP LOSS

      1. LOSSES PUT AT EXPECTED MININALWith the use of the stop loss, the forex trader already have a predetermined amount as loss when the trade goes wrong. This way the stop loss helps keep loss at the expected level hence the forex trader does not lose more and has his emotions under control. Where the stop loss has not been used and more losses were recorded it leads to the emotion of the trader being put at test since he never expected such huge loss.

      2. SECURES TRADING FUNDS:The stop loss tool when used safeguards the trading capital of the forex trader. He has reasonable funds still available after the stop loss get hit and so he has the opportunity to trade at another time. Had the whole funds been lost no such opportunity anymore, at least till he could source for another trading capital. The stop loss helps make such search unnecessary.

      3. ALLOWS THE TRADER GET BETTER TRADING SETUP:Without the stop loss put in place, the forex trader most times will keep monitoring the losing trade, hoping it returns to his chosen direction, which might not happen. But when the stop loss tool takes out the trade at the preset price, the trader becomes free and he can now concentrate on the market, looking for another trading setup to take. So he gets saved from wasting time nursing a losing trade.

      4. TRADING IS CONTINUOUS:When the forex trader is smart enough to use the stop loss, then he remains in the business much longer. Those who fail to use the stop loss most times get sent out of the market for weeks or even months since they need to raise a new trading funds.

      DISADVANTAGES OF USING THE STOP LOSS

      1. PRICE RETURNS AFTER HITTING THE STOP LOSS:The most common reason traders who do not use the stop loss give is that price returns after the stop loss tool takes out the stop loss, hence wasting their money unnecessarily. But though this happens at times truly, it is not a good reason to detest using the stop loss when one considers the level a loss could get to at times.

      2. SEVERAL STOP LOSS HITS EVENTUALLY EAT-UP THE TRADING FUNDS:Many traders still reason that since many stop loss hits could eventually lead into margin call as well what is the point in using it in the first place. However though frequent stop loss hits could margin call an account, it still gives the forex trader better opportunities of more trades which to me is good for the trader as the next trades could be winners.

      Forex traders need to know the stop loss has never been said to guarantee the success of a forex trader, but it could help the trader as he trades the market. Success in the forex trading business requires good trading knowledge, good trading skills, good experience and good trading discipline for success to be achieved. However doing the right things and at the right times helps a lot.
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      • #4 Collapse

        Stop loss in trading Forex
        The use of stop loss is one way which traders protect their trades from getting into excessive losses. The stop loss is used to put a stop to trades and close it automatically when the losses in the trade hits a certain point which is set by the trader. This enables the trader to manage risk and reward appropriately. The stop loss has it's advantages and likewise it also has it's disadvantages.

        Advantages of the Stop loss
        Some of the advantages of the stop loss includes

        It enables the trader control the level of losses the trader wishes to risk
        The stop loss when set will help a trader to put an end to this a trade when the losses get to the point which the trader does not wish to accommodate anymore thereby enabling the trader to manage risk Properly.

        It gives the trader the opportunity to leave the trade and attend to other things
        The trader that uses the stop loss would not have to sit down and monitor the trade because the trade already would close once the loss is gets to the point he wishes not to accommodate. The trader can attend to other things not getting scared of the account been wiped out in time of huge losses.


        Disadvantages of the use of stop loss
        There are some disadvantages of the use of the stop loss which includes

        Stop loss can close trades that would have turned to the winning direction
        The stop loss can close a trade which would later have turned into a profits making direction. This is one big disadvantage of the stop loss and that is why it is adviceable to set the stop loss at some good distat which would not close the trades too quickly.

        Using stop loss exposes a trader to the risk of stop loss hunting
        A trader with a stop loss can be affected when there is stop loss hunting by big players where the stop loss can be hit and then trades can go a direction that suits these big players. This is just almost same as the the first point mentioned.

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        • #5 Collapse

          Forex trading is one of the biggest financial markets in the world. Because of huge participants across the globe forex market become one of the most volatile markets in the world. If a trader able to ride the correct trend then everything goes well. The trader could able to grab a good profit if the trend continues to go in favourable direction. But if a trader unintentionally open positions against the trend it may lead to severe losses.

          What is stop-loss?

          Forex trading provides us an ultimate tool to protect our account from getting any huge losses. This tool is called stop loss and we can protect our account from getting severe losses just by putting stop loss into our trading positions. This seems to be simple but it can protect our account from any margin call.

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          Stop-loss can be edited, removed, or re-enabled again into our trading positions. It can also be converted to a trailing stop in case the market goes in the right direction. However, while enabling trailing stops we must need to keep open our trading terminal. Once the position goes into a positive zone, the trailing stop automatically moves towards the positive side and locks the position into profit.

          There is no harm in putting stop loss into our trading positions. But most of the traders do not like to put stop losses into their trading positions. Because they don't want to lose even a cent in the form of stop losses. As a result, they find it really difficult when the trend goes against their open positions. They feel like a helpless creature when the position started to give huge drawdown.

          During the huge negative drawdown, a trader only hopes for good. If they close the order then they can lose huge loss. On the other hand, if they do not close the floating loss position, margin calls may occur. This type of situation may occur if a trader does not put stop loss at an appropriate level and also at an appropriate time. So here every trader should try to understand the importance of putting stop losses into their trading positions.

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          Key points to be noted
          • Stop loss helps us to protect our account from getting huge losses.
          • We can easily maintain the risk-reward ratio by using stop loss and take profit.
          • We should put stop loss at an appropriate level so that it won't get hit frequently.
          • Stop-loss can be used to lock profit and to make more out of a trade.
          • Stop loss is not mandatory but as a responsible trader, we should put stop loss.


          Benefits of putting stop losses:

          1) Protect our account: Stop loss can protect our account from getting huge losses. We can set the risk percentage to the minimum. If we want to lose 1% or 2% from our trading position then it can be done by just putting stop losses. Suppose we have 500 bucks and we're opening order with 0.10 lot size.
          If we want to lose only 2% then the amount will be $10. That is 2% of $500 is $10. If the one pip value of 0.10 is $10 then by putting 100 pips stop loss then we'll lose only $10.

          If our stop loss level is 50 pips then we'll lose only 1% in case the price hit stop loss level. So this is a great way to protect our account from getting huge losses.

          2) Manage risk-reward: Stop loss is a handy option to manage the risk-reward ratio of any trader. If our risk-reward ratio is 1:2 then we can apply it just by putting stop loss and take profit. If we risk 2% for every trade then we must put take a profit at a 4% level. This way we'll able to maintain the risk-reward ratio into our trading account and able to grow it to a good profitable level.

          3) We won't need to monitor our trades: If we put stop loss and take profit level into our trades then we won't need to monitor our positions all the time. Even we turn off our PC or close our terminal in mobile devices, the stop loss and take profit will work. We would able to concentrate on other works if we've already put stop loss into our trading positions.

          4) We can lock profit: Stop loss does not only help to protect our account from getting huge losses. But also it can be utilized to lock our profits. Suppose our take profit is at 100 pips and the price has already moved to 50 positive pips. In that situation, we can drag the stop loss level to 15 to 20 pips positive side. This way if the price falls again it'll give the profit only after stop loss hit.

          5) Get more opportunity: If we put stop loss and minimize the loss amount. We'll able to grab more opportunities in the future. Even we lose few trades in the form of stop loss hits we'll able to continue our trades. This is only possible if we strictly apply stop loss into our trading positions.

          6) Automated cut loss: By putting stop loss into our trading position we won't need to cut losses manually. Everything would be performed automatically. In certain market conditions, stop loss would work better than manual cut losses. So every trader should try to put stop loss rather than to perform cut losses manually.

          The negative effect of stop-loss:

          1) Lose more than expected: Sometimes in a fast-moving market, a trader may lose more amount than specified. This may happen if slippage happens. Due to high volatility during economic news, we may face such a situation where stop-loss might not work properly and we may lose more than our desired stop loss level.

          2) Gap opening risk: If we keep our positions open during the weekend. Then we may face gap opening and thus losing amount may increase. Due to a gap opening the price may not follow actual stop loss and it may open in a huge gap. This is possible to lose more than expected if the market opens in a huge gap on Monday. It happens only when the market opens beyond the stop loss level.

          3) Risk of frequent stop-loss: If a trader does not put stop loss at the correct level. In case stop losses are being put near open price levels in all positions. There are risks of getting regular stop loss hits. In such a condition, the trader may lose more than an affordable amount.

          4) Can't avoid unnecessary losses: Sometimes trend goes in the correct direction after hitting the stop loss level. This might happen due to high volatility in the market. Also if we do not put stop loss at the correct level then we may get such unnecessary stop loss hits.

          Conclusion: There are lots of good and bad effects of stop-loss on our trading. No matter how bad it is to put stop loss. But we should try to look at the advantages of stop-loss in our trading activity. Getting stop loss is not a bad sign of any trader. If a trader gets a stop loss hit then he or she must be thankful to stop loss. Because stop-loss helps them to safeguard the big part of equity.

          There is no compulsion that we must put stop loss into our trading positions. Nobody would force us to put stop loss in case we do not like it. However, it is our own responsibility to protect our trading account. If we do not put stop loss then we may lose the whole account in the form of a margin call. It is better to lose a small percentage of equity in the form of stop loss than to lose the whole account in the form of a margin call.

          If we do not put stop loss this means we're risking 100% of our equity. This is not a great sign of a disciplined trader. So we've to be very careful not to be overconfident and shouldn't skip the process of putting stop loss. Most of the traders do not put stop-losses because they think the market won't go against his or her position. This might be true a trader may be more experienced and predict the market correctly. But the market may change its direction at anytime. 

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          • #6 Collapse

            Good and bad of effects of stop loss
            Most traders use stop loss during forex trading for good rasons, but there are also some teradersa that prefers not to use stop loss, and they aslo have their reasons for not using stop loss. As with everything there are good and bad sides to the use of stop loss.

            Advantages of stop loss

            PROPER RISK MANAGEMENT
            Proper risk managment is probably the major reason why most traders use stop loss during forex trading. Future price movments are sometimes unpreduictable, so it is necessary to protect the forex trading account in the event of price moving in an unintended direection which is capable of wiping out the trading account if the loss is not limited. Stop loss serves to protect the trading account by limiting the loss to a predefined amount that that the trader can afford to loss in the event of adverse trade.

            PROPER EXECUTION OF STRATEGY
            Most traders apply differnt trading strategies to realize profits during forex trading, and these strategies cannot work out properly when there is no limit to losses if the trade goes wrong. Stop loss helps to execute the forex trading strategy in the proper way that can lead to profitable trading. .

            CONSISTENT PERFORMANCE
            The goal of every trader is to reach a level of trading performance where consistently profitable trades can be made. this can only be achieve if the risks are controlled with the aid of stop loss. Consistency involves using predictable risk to reward ratio which is is repeated over and over again.


            Disadvantages of stop loss
            The disadvantages of stop loss are as follwows.

            Sometimes
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            • #7 Collapse

              Importance of Stop loss

              Stop loss is one of the most importance market order available in the market, it's usually accompany by taken profit.
              To trade professionally and secure, there must be the presence of stop loss.

              • Definition of stop loss

              A stop loss is an order set on a trade which order the broker to close out the trade when the price reached a certain price most probably in loss.

              Stop loss order is develop to reduce help reduce the probably loss in the market, It is a great idea to have this instrument on occasion when you can't sit before the PC all day by yourself.

              Despite the ability of the stop loss to reduce loss, it can actually be an hindrance for traders in the market, if a trader doesn't have the right skills to set the stop-loss to the right price in the market, it may even cause unnecessary loss for traders.

              • Type of stop loss


              • Guarantee stop loss

              The guarantee stop-loss is what most trader consider as the real stop loss, when this stop loss is set, it's fixed, the only thing that can deter the stop, is when a trader closes the trader or remodify the stop themselves
              The advantage of this stop-loss is that, regardless of how volatile the market, or the occurrence of slippage, the order will not fail to close at the stop loss.

              • Trailing stop loss

              Trailing stop loss is more like a floating stop, which changes as price changes.
              For example if you place a 15 pips trailing stop, once the price of the position moves about 15 pips in positive direction, the trailing stop will be activated.

              • Advantages

              This stop loss mainly is used to control capital, and protect capital after string of positive run.

              • Disadvantage

              An improper setting stop loss usually lead to stop loss hunting.

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              • #8 Collapse

                Stop loss is a topic that is not easy to tackle because there are many things that need to be considered. So today we’re going to discuss how we’re supposed to place our stop loss when trading so we won’t end up getting stopped out repeatedly and lose money unnecessarily. There’s actually a logical place to put stop loss and also some things related to the dynamics for a resistance and after all that we go over the patterns.

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                SO WHAT IS A STOP LOSS?

                Alright, we’re going to make a clear definition about this subject so we can stand on the same page. A stop loss is by strict definition a place where your analysis is no longer valid and the system will automatically liquidate (close) your position. Sure, you can close your position manually but having the convenience of automatic stop loss you should take advantage of it because there are situations where price might move too fast and it would take out your position way more than what you originally would have exited. There are different ways to do it and we’ll touch on them later next. Essentially, a stop loss functions as a way to limit your loss to the accepted level. A good conduct in any business is to limit your losses and let your profit run.


                WAYS TO PUT STOP LOSS

                As mentioned before we have several ways to do this. The first one is to just put the stop loss level and then let the system execute it for you at your specified price. The second way is to just manually do it. Some people trade fast using a small time frame and they are the ones who usually close their trades manually. Another one is by using a trailing stop loss and the beauty of this method is you are actually securing your profit along the way and it will be done automatically by the system. Another way is by using the account’s whole balance and this is essentially done by putting the large portion of your trading capital outside of the trading account and only putting a small amount in the trading account. Think of the balance in your trading account just as your necessary margin that you need to open a position and the rest is the buffer for the stop loss.


                WHERE TO PUT THE STOP LOSS?

                There are also different ways to put your stop loss depending on the trading strategy or your personality and we’re going to look at them one by one.

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                1. Put your stop loss at technical level. This can be a level of support/resistance or supply/demand. It’s very straightforward, just put your stop loss at a place where you see there is a strong SR or SD. Don’t forget to add in a few pips as a buffer.

                2. Use indicators such as ATR to determine how much should you put (in pips) as your stop loss. Just put the indicator on your chart and see how much is the ATR and put that many pips as your stop loss. If for example you see the ATR is at 15 pips then you can use 15 pips as your SL or 2 x 15 pips as your stop loss (2 times the ATR). Some traders prefer to use just the range instead of the average range like ATR.

                3. Use a pattern. If you are trading using a pattern then you can also set your stop loss using the pattern. Every pattern has boundaries (upper and lower boundary) and those boundaries will be your stop loss. Also don’t forget to add several pips as a buffer.

                4. Use the stop loss from the time frame above the current time frame that you are monitoring. If you are trading using top down analysis then you can check the bigger time frame for a place to put your SL instead of just checking the current time frame.

                5. Use a dynamic stop loss. What this means is you will use technical indicators such as the moving average and use it as your stop loss. This way, after you enter your position you just need to check when price hit the moving average that’s your cue to exit the position. This requires manual handling or you can build your own script to do the job.

                6. Use fixed pips as your stop loss. If someone is already in this market for so long they will usually have a statistical advantage to know how much usually the price will take a retrace before going into the direction of your profit. After encountering this scenario hundreds of times a trader will know how many pips is appropriate as the stop loss. Don’t just put a fixed pip if you have no statistical data to back you up.


                STOP LOSS HUNTING. IS IT REAL?

                The quick answer is yes and no. By yes, it means there were practices like this in the past when the market is not well regulated like today. By no, it means it simply does not happen today where brokers are trying hard to get as many clients as they can. The competition in the forex brokerage business makes it counterproductive to hunt the stop loss of the client because one bad thing that makes it to the general trading community and the broker’s reputation will be destroyed and they won’t be able to get clients anymore. Strong areas of support/resistance or supply/demand are usually places where price is very volatile and this is certainly not a good place for a beginner trader. It is generally advisable to just trade using a big time frame starting from H4 time frame and above because the volatility that can happen during strong data release or a scheduled major economic event does not have that much of an impact on the bigger candle produced by the big time frames.


                SO WHAT’S THE GOOD AND THE BAD OF A STOP LOSS?

                The discussion so far has been the good side of having a stop loss in place when you are trading. As for the bad part… nobody really likes taking a loss on their money and by using your stop loss you will certainly lose money if the market moves against you. However, this loss is limited and it is actually much better than not having a stop loss set and losing every penny in your trading account. Now, what do you think?
                You only need to read THIS ARTICLE to make money from forex trading,

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