Stop-loss is an important tool that refrains an investor from losing money beyond a set price. When a person sets ups this tool, the order is executed whenever the trend reaches the price. This is a remote execution without the investor and has been successful in managing the fund. Professionals believe these should be used in every order as the market is inconsistent. While this method is gaining popularity, there are many misconceptions about this technique. The community believes they can change the position during the order and make more money. Whenever the trend is going in the expected direction, reduce the stop-loss and make a fortune. This sounds simple but forex is a sophisticated market.
Every decision should be undertaken after analyzing the situations. Though this may sound profitable, certain aspects are refraining the professionals from implementing. We are going to explain the concept of why moving a stop-loss is not going to increase the profit.
Table of Contents
Stop-loss should not be moved
Because it loses the effects when an individual is changing the position. Think of a trend when a person has set a stop-loss for 5 dollars. This implies if the trend comes down or goes up, depending on the order, the trade will be closed when the loss exceeds 5 dollars. This tool manages the capital more proficiently than the traders as there are no emotions involved. We have seen customers holding onto the positions while their balance is wiping out only to believe the price will rise in the future. By moving a stop-loss, shows a person is not determined. He has not made up his mind and is not confirmed the decisions.
As the market keeps on moving, the volatility may catch up with the stop-loss and close the order. In the future, the price will move in the expected direction but they cannot make money. By changing the position, they have only lost more money. This ignores the tool’s performance for which it has been implemented.
Why move when you can set trailing stop-loss?
Trailing stop-loss is important when a person wants to go with the trend. If a participant needs to keep the trade open and keep on trading, this is the tool that should be used. As the profit keeps on growing, the stop-loss will change with the scenario. This confirms the orders will be closed at the given price. This is helpful for customers who want to hold onto their positions. Many professionals use trailing stop-loss to make money during volatile trends. Instead of placing stop-loss, use this technique to keep the capital from reducing. To make the overall process easier, you may visit the website of Saxo and get a free demo account. Use that paper trading account to explore the key methods for placing the stops.
Are there any exceptions?
This is an important question because trading is a dynamic concept. Changes are made to cope with the market and without improvise, no person can survive in this competition. While experts prefer to stick to a strategy, exceptions can be made when required. For example, during a major news release, don’t use a trailing stop-loss. Use a stop-loss but exit instantly if you think the price is going to be volatile. Don’t take chances because the economy is unpredictable or break the basic rules of setting up the risk to reward ratio in investment business.
When temporary fluctuations occur, you may consider not to use a stop-loss provided to exit after a short time. Fluctuations can close the order which doesn’t want. Ultimately, never follow a disciplined strategy. Learn to improvise when required. Many investors lose capital because they never develop the dynamic concept. They focus on using a fundamental method that has no relevance. Use stop-loss in every trade to reduce the chance of losing money beyond expectation. In this way, investors can successfully develop a career in currency trading.