Do You Really Know What Stop Loss is About?

| April 14, 2013 | 0 Comments

It is obvious that we must constantly repeat the presence of Stop Loss on open positions for a trader is comparable to the presence of ventral parachute for a person who just jump from a plane: not having one can be fatal! Game over …

Forex Tips
You have all read, heard and perhaps even experienced the need for each open trade to be accompanied by a worst-case scenario, which is marked by the famous Stop loss. The worst happens when the stop loss is hit: not before or after! The whole game is determining what worse …
This stop loss can be set in different modes. I’m here to classify in a very subjective manner, starting from less than desirable for your best.

No real stop loss and a mental stop loss

What is a mental stop loss? It is a barrier that you have set in your head (it exists only in your mind and nowhere else) and you may transform into real action when it is affected by courses.
Come on, we’ve all done it, right? And in most cases this does not work, is not it? Why?
Because our brain is imperfect and human beings do not like being wrong. What’s going on there then, in most of the time, when the course will achieve this level of mental stop? There is a very good chance that you do not activate it because you actually hope. Listen to the little voice that speaks to you: “You are not wrong. Gonna come back, it is on …”.

Stop the mental technique is dangerous, you need to be aware of. For example, this technique requires you to be ready to act when the level is reached, regardless of the circumstances in which you find yourself.

No Stop Loss formal defined in advance as you are in “stop and reverse”

This mode is that you are still in place and. For example, you may decide that it will be the signal of the MACD indicator which you will follow (strategy not to do in reality).

Stop Loss set only after a risk level

Let’s say you have a capital of 10 000 euros, you want to open a trade a lot, and you do not want to risk more than 200 euros (2% of the initial capital). This requirement will set a 20 pips SL for a standard lot (10 euros per pip).This is good, and this is what is often stated in the practices of Money Management.

Stop Loss technically determined by the actual course

It will thus determine your level of SL using technical indicators that reflect the realities of the course, and then, depending on your Money Management, determine the size of your position.This is very different from the previous point, in the sense that you do not set your SL on a simple mathematical calculation (depends on capital, risk and position size) but on a technical reality courses.

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Category: Investment

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