Forex No Stop-Loss Strategies - Key Takeaways
- Traders are using the Forex stop loss strategy to cut their potential losses in case the market turns against them, protect their deposit if for whatever reason they can not access their trading account and also to eliminate the emotional factors from their decision making process.
- Trading without stop loss orders is quite viable, however, traders still need to put some methods in place to guard against large potential losses. This can include employing hedging strategies, options, or using very low or no leverage.
- It might be helpful to keep in mind that placing a stop-loss order does not guarantee that the position will be close at exactly that price, which is mentioned in the order. In case of high volatility or low liquidity, the actual price might be several pips away from the intended target and consequently, a trader might face higher losses than originally anticipated.
FAQ: Trade Forex Without Stop-Loss Strategy
Is take profit orders as popular among traders as stop-loss orders?
A profit order specifies the price at which the trade will be automatically closed for a profit. There are many professional full-time traders who place both stop-loss and take profit orders when they open their positions.
However, it might be helpful to mention, that not all market participants are accustomed to using both of those orders simultaneously. Many traders might prefer to only limit their downside with stop-loss order and close winning trades manually. The reasoning behind this is that in some cases acurrency pairs might be engaged in some trend and therefore there is no point in cutting potential winnings prematurely.
Take profit orders are still common in the marketplace, but because of the reasons mentioned above, they might not be as popular as stop-loss orders.
Why do many traders using scalping strategies avoid using stop-loss orders?
The scalping strategy usually involves very short term trades, typically with 1 to 15-minute timeframes. During all this time a trader is in front of the trading platform, always in control of the situation, therefore there is no need to insure against potential losses during his or her absence.
Another reason for this is time management considerations. A number of seconds, which is needed to prepare a stop-loss order might make very little difference for swing or long term traders, however, for scalpers, this is an important time frame, they do not want to lose on filling out orders.
It is because of those considerations, that the majority of scalpers might prefer to trade without stop-loss orders.
How useful is trading without a stop-loss strategy for the long term traders?
One of the most important factors when deciding whether to use stop loss orders or go with Forex no stop loss strategies on long term trade is the amount of leverage. This type of trading style can involve keeping positions open for weeks or even months. A Trader can regularly devote several hours to trading, however, he or she can not always be in front of the screen.
In case if an individual uses 1:50 leverage for example, then trading without a stop-loss order can easily lead to massive losses, since it only takes a 2% change against the position, for it to be closed down.
On the other hand, if a trader does not use leverage, or only uses 2:1 leverage, then he or she does not have to worry so much about daily fluctuations and can afford to be more patient with the market.
What are some of the most common mistakes people make, who trade Forex without stop-losses?
One of the traders in this situation is to trade on emotions, not closing trades even after it becomes obvious that it is a losing position and the market is not changing its direction.
Another common error some traders make is trade with high leverage without a stop-loss order in place. In fact, theoretically speaking, market participants can succeed in trading if they use one of those things in isolation, but doing those two things together is a very dangerous combination and potentially can lead to massive losses. With such blunders, traders can easily lose their entire deposit in a matter of hours.
Can trading forex without stop-loss strategy be justified during the major announcements?
There are several professional traders who do not advise us to trade major economic announcements without having a stop-loss order in place. However, this view is not universal to the entire community. Perhaps, traders with low or no leverage might be more justified in taking that risk.
It might be also helpful to point out that major economic releases are usually accompanied by very high volatility. As mentioned before, in this type of environment it is not guaranteed that a broker will be able to close position on the price specified in the stop-loss order, so as a result traders might face higher losses.
Because of those reasons, some experienced professionals do not keep trades open during the major announcements. They prefer to observe the market reaction for some time, before deciding to open new positions.