Stop Loss- The Kind of Insurance Money Can’t Buy

By | October 25, 2022

Why stop losses are your best bet against runaway losses

We’ve said it before and we’ll say it again: a successful business career is built around effectiveness. risk management.

Traders who do not take proper precautions and plan for negative outcomes will quickly find themselves in situations they cannot handle or escape.

One of the most fundamental and basic tools a trader has to avoid and protect against monumental losses is stop losses.

Stop Loss, defined

Imagine that you are in the circus, watching the trapeze artists swing from side to side, up and down. They fly through the air, going up and down, always holding onto each other or a bar as they perform their air show.

They have practiced the routine thousands of times, and no doubt countless attempts ended with someone failing and falling. But each time they fell, they landed in a web that guaranteed no serious injury or death.

Now replace this scene with the forex market. Prices go up and down, through slight swings and severe swings. a well trained professional He will almost always pick things up when they go down and gracefully move them from side to side as well.

But what happens when an asset starts to fall, like one of the circus acrobats? Without a safety net, the asset will go under and do great damage to the portfolio.

This is where stop losses come in.

Stop loss is a preset place where an exit will occur if a price goes down and reaches the number. Stop losses are the networks that will catch your assets before they have a chance to hit the bottom.

limit emotions Trade Side

After the trapeze artists analogy, it should be clear why many traders use stop losses in their trades.

In our articles, we constantly remind our readers of the mental aspects of trading. We are always writing about the need to review your emotions at the door when you get to the negotiating table.

Traders who get carried away by their emotions tend to make irrational and extreme decisions that, while sometimes successful, very often lead to financial ruin.

as part of your Commercial planStop loss helps to remove the emotional side of trading. They act as a hard stop who doesn’t take your feelings into account during a trade. No matter what happens or how good or bad you feel about a trade, a stop loss is mechanical and independent of your moment-to-moment mood swings.

No matter what you try to tell yourself about a price (it’s going to go up, I know!), the stop loss will keep you in check and make sure your actions are driven by a logical plan, not an answer. momentary emotional

Helps control multiple orders and limit damage

Most traders like to trade several orders in the market at the same time.

The problem is that the market could move quickly against us, and we must know how to react quickly.

The ability to manage several orders at the same time requires experience and speed, every time we place an order in the market, we add a Stop Loss order, so if the market unfortunately goes against us, the order will be executed automatically. .

In this way we can be calm and in control of the management of several orders at the same time, and not suffer a great loss.

Risk management

A stop-loss order allows you to decide how much you are willing to risk.

Every trader has a certain amount that they are willing to risk, no one wants to take a big loss.

After a big loss, plus financial hit, you get into a psychological state where you want to win back the loss, and if possible, quickly, you will find yourself making decisions that are not in accordance with your trading plan.

Once you know how much you could risk, it’s easy for you to accept that losses are part of your trading life. Stop Loss order helps you control your risk management according to your trading plan and trade professionally.

Stop Loss – Conclusion

As a career trader, you need to focus on maintaining a healthy portfolio and making modest, consistent profits.

Sure it’s nice to be successful once in a while, but sustained success will come from bread and butter, day after day, consistent victories.

When you focus on long-term asset management, stopping losses becomes an important part of maintenance. They will ensure the survival of your work and always act as a lifeline in tumultuous times.

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