Stop-loss is an important part of developing strategy. If the stop-loss is not placed, you will not know how to close the trades when the trends are going against you. This is an online industry and you need control over the trades. It may not be possible for the traders to monitor the trades all day. They may fall asleep when they are trading with long-term strategies and there can be no internets. All of these may happen and you need to find a way how to remotely close your trades.
The stop-loss is the answer that closes your trades when the trend reaches to your set level. If you have placed stop-loss, there is also a dilemma. Should you place it at a tighter position to keep the loss at a minimum level or should you keep it at a wider position? This dilemma is not solved and traders cannot take the right decision. The answer depends on your trades and the volatility. This article will try to give you an answer based on our experiences of trades. It will try to combine the experiences of professionals also as they know what is best for the traders.
Using mental stops
Some people often prefer to use mental stops to save their investment. Using mental stops is only for the experienced professionals and it takes a year of practice to master this skills. The new Forex trader should always use predefined stop loss for their trades. But having a predefined stop loss sometimes doesn’t work. The successful traders always know when to close their trade early. There is no logic to stick to your losing trades when you understand the trade is going to hit the potential stop loss. In such situations, it’s always better to close the trade early.
Dealing with the lower time frame
The Singaporean scalpers in the options trading industry always love to use tight stopples. It allows them to trade with a big lot even though they are not sure about the outcome of a certain trade. This is where they make the biggest mistake as a businessman. In order to save yourself from the worst case scenario, you should be always prepared to accept a few loss. Never think you can earn huge amount of money without taking proper training on Forex trading. You might be a scalper, but your trade enough space. Never use to tight stop as it will be hunted down by wild spikes.
The tighter the stop-loss, the more benefits
First, we will start with the positive things of placing a stop-loss at a tighter place. As we all know, it closes our trades automatically, a tighter stop-loss will save your money. There is a small possibility that your trades may get affected by the normal volatility, people would like to take that chance. The benefit that you will get is a small loss of your money. As the stop-loss is tight, your loss will be not much. The common and the novice people go for a tighter stop-loss at the beginning of their career for this reason. They try to avoid losing and they use tighter-stop-loss.
However, there are also risks
A tighter stop-loss also has some own dilemmas. You cannot get a chance to keep the trades open and even in the normal movement, the trade will be closed. Many people have faced the same thing in their life because they do not know the volatility of different markets. Every market has the different volatility that has to be adjusted in your stop-loss planning. If the normal rate of movement is more than 10 pips and your stop-loss is set at only 10 pip away from the opening price, it is easy to predict that your trades will be automatically closed. You may think you have saved your money but you have lost it. The other traders who have set a wider stop-loss will enjoy the profit.