“I know what I am doing. Setting a stop-loss when opening this Forex trade won’t affect the outcome of my profit.” Have you ever whispered these words? And before you know it, the market drops and you see your hard-earned money going down the drain; all because you were too eager to make a profit and didn’t think things through.
What happens if you don’t set a stop-loss
When trading on the Forex market, there are a certain number of rules you need to follow. You might think that since you are an expert trader, stop-losses are for newbies. Well, take it from the king of Crash Test Forex Trading; there will come a time you will thank your stars for that simple tool!
Once you open a trade, you need to set a stop-loss and take-profit margin to your chart. It should be inked in black on your trading strategy and branded into your brain. Even expert traders will stress this to a tedious point – you always need to set a stop-loss, no matter what your gut might be telling you.
Setting a stop-loss serves as a protection policy for the money you have in the trade. If you enter a trade at a certain point and the market rises, you make a profit. But when the market drops, some traders might start to feel risk and tension building up. You might think that you are going to ride out the drop in the market and it will rise again. Then again, what if it doesn’t? Are you just going to sit and watch your money vacate your account? You’d be very silly to do that.
How to prevent this mistake
While watching your money exit the back door, you hear a little voice in the back of your head saying, “You should have set that stop-loss…” Unfortunately, it will already be too late to set a stop-loss right at that point since you have already lost capital.
To prevent this scenario, you need to take the advice of a Crash Test Forex Trader. You need to set a stop-loss to your trade before you even touch the buy or sell by market button! Think of what might happen when the trade you are about to execute turns sour. How much money are you willing to lose on this particular trade? Also, think about the number of pips the market might drop by if it should drop. By keeping this in mind, you can calculate a reasonable point to set your stop-loss on. This also gives some room for when the market, in fact, rises to give you profit again. Remember that when you have set your stop-loss, you should never move it further down the chart in the hope of the market rising again. This is a rookie move and shows that you don’t trust your own trading judgement and strategy.
What you can do differently
To eliminate the possibility of your entire trading account being wiped clean, you need to stick to your trading strategy. Whether you write down what your typical trade will consist of or keep notes on your phone, you need to write the following words right at the top of your strategy page in bold: SET STOP-LOSS. That way, the very first thing you’ll see when looking at your plan is the fact that you should add a stop-loss to your trades. That will help you remember so you can’t blame it on forgetfulness. With that said, if you take Forex trading seriously and don’t want your hard-earned money to disappear before your eyes, you need to stick to your trading plan like you stick to your beliefs about life. There is no sugar-coating it; setting a stop-loss is crucial for success.
Setting a stop-loss will not only protect your capital; it will serve as a guideline to successful trading. Without this tool at your daily disposal, you might as well kiss your money goodbye as there simply is no way of telling whether you are going to make a profit or whether the market will turn its back on you.