"Take Risks: If you win, you will be happy; if you lose, you will be wise. Nothing ventured, nothing gained."

Wednesday, November 18, 2009

The Importance Of Stop Loss

We always talk about the best technique to use when it comes to Forex Trading, be it divergence, Crossovers or triangles etc etc. This is always what we thought to determine the outcome of our trade's success. How we can beautifully execute these moves, the timing in which these techniques are performed. Yes at least these are what i thought. Until now...

I had several bad experience with Stop Loss. Ever experience bad trades with the "touch and go" of your Stop Loss? Meaning the trade go against you at first, touching your Stop Loss and returning back on course towards your profit target?? Yes, thats the bad experience that i have with Stop Loss. So one day, i decided to not use it despite the importance of it (according to many books and pro traders).

So, i had several good trades, reaping 50 and 50 pips at a time. I got a streak of 5 to 6 trades profit. Feels good. I am on the way to hitting a 2 weeks continous profit. Account almost doubling. Then, one of my action destroy everything. You can say that maybe i am being over confident in myself. That evening i went in one of the highly violatile pairs, GBP/USD. I went in, and it starts to go against me. But somehow i felt confident that i am right in that trade(Due to the high hit percentage of all my previous trades). So i decided to do a average up or down or left or right, u know? To maximise my profit. After which, price starts to consolidate. I should have stop and withdraw from that trade since things are not going as planned. Yes u r right, i chose not to come out due to the floating lost. Worst, i chose to go work and leave it running WITHOUT setting my Stop Loss. I was telling myself, " No problem man, my TP will be hit somehow, if i set SL, there will be a chance that it will hit my SL and proceed to my TP"

Next thing when i come back and saw my trade, it shows -195 and -175. In terms of pips. O M G!!! Its disastrous, at that point of time i am totally clueless of what i should do. So i close them at around -190 and -170. It totally wipe out my hard work for that 2 weeks. I did a averaging down to maximise my profit! But who knows?? It helps to maximise my lost instead!!! WTF??? All my profits are gone and even eat into my capital for that month. I suffered a lost. A major one. Morale plunge into darkness.
HO HO HO!!! Everything is going so well until this. I learned the lesson a hard way.

What i've learned? Well, its obvious, the importance of Stop Loss yea? Nevermind that it got hit, what of importance is you win it back and dont let your losing trade ride even more. I had 5 to 6 trade profit streak. So whats the big deal of having 1 lost? Your hit percentage aint important at all. Dont worry if your 100% record becomes 90%. What important is, your capital. Your $$$!!
Last but not least, your confidence in trading. Its important that we have confidence, so that we are comfortable in entering trades, so that we wont enter trades too late, so that we wont whine and curse and swear when it actually turn out right if we were to follow our signals and indicators and trade. These are the good and right ways to utilize our confidence. But never be over confident. It makes you unwilling to accept lost. It makes you not wanting to accept lost and shift your SL away, soon a -50 becomes a -70 or even -100. Its disastrous. Keep your confidence in check. Mine went astray for that 1 or 2 days and there goes my hard work for 2 weeks.

Success is not final, failure is not fatal. It is the courage to continue that counts.

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