Forex-Zone

Why the heck should I use Forex Stop Losses?

I’ve been asked several times from my forex coaching students, “Why should I use a stop loss? The market seems to see it and move to stop me out, then turn around. Why can’t I just watch the trade and get out when I feel like it?” I’ve heard (and spread) conspiracy theories about dealing desk brokers pushing the market up and down to hit our stops. I’m not a broker, but I know that some brokers make more money when we lose a trade than when we win. So the motivation is there. But that’s not the subject of this article..

I want to try and answer the question about why you should use forex stop losses every time.

The biggest reason is this: Pretend you are watching a trade with 10 mini lots and your get out point (not a stop loss, but same level) is 15 pips below the current price. You are just going for 20 pips and have your finger on the mouse. You used the restroom before you got into the trade so you should be good for hours. Then you notice that your charts haven’t moved in a few minutes, and you check your internet connection and find that it is down, you quickly call Concast (names were changed to protect the innocent) and they inform you that the lines are down and they should have it up in a day or two. You start freaking out, because you need the internet to find the phone number of your forex broker to tell them to close your trade.

In the meantime, Bob Greenspan goes on CNN and makes a critical statement about the global market. (even though he is retired) By the time you finally call your best friend in a different state, give him your account number and password for your trading platform, the market has moved 215 pips against you. What you were originally planning to be a 2% risk trade turned out to be a 30% loss to your account.

You get the idea. Solution: Place a stop loss! or if you still refuse, put your brokers number in speed dial on your phone and know what you need to say to make things happen smooth. Have your account number written down somewhere, they will want to know it too. Talk to your broker ahead of time about this process.

I was going to talk about a couple other reasons that you should use a stop loss every time and some options you have to fight the system if needed, but this post is already too long, so you will just have to check back later when I post the rest.