Sunday, April 23, 2017

Problems With Not Placing Stop Loss

July 6, 2012 by  
Filed under Forex FAQ & Latest Post


In the forex faq today, we have a problem from one of our fellow traders and I will like to use this question to show why it is so important to trade with stop loss.

Below is the question:

I am already trading forex for almost 1 year. I did earn money also, but I have also got position that are not close yet because I did not place any stop loss. I just play 1 currency which is GBP/USD.

Now I have many position with some that are long and some that are short. Most of my short position is at 1.5318. Most of my long position is at 1.6529. The gap is too far away.

But I already balance the 2 side and I have used up all my available margin. now what I need to do? TQ

Maybe let me interpret this question for you guys just in case some of you do not know what is going on.

The trader above enter a long trade (BUY) without placing any stop loss. However the price later move down which means that he is making a loss. At this time, he decided to enter a short trade (SELL) so that he can make money from the down move to balance the losses he has made for his long trade (BUY).

Similarly he did not place any stop loss on the SELL trade as well so that his total loss is being fixed to a certain value.

Example:

His first LONG trade losses 15 pips and then he immediately enter a SHORT trade.

The price moves down another 25 pips and his first trade losses another 25 pips but his second trade is making 25 pips which means that he is still making a loss of 15 pips in total. From this moment on, no matter which way the price is moving, his loss is fixed at 15 pips.

He continues to enter some trade hoping to make back the 15 pips but instead he made many BUY and SELL trade like the one above to contain his losses and now he is facing a problem. His margin is totally used up which means that the broker can exit all your position without notifying you and he will realize all the losses that he has now accumulated.

My personal advice to you is to exit all your position and realize the losses. There is no way you can make back the money that you have lost as your margin is totally used up.

You may be thinking of topping up your account but this will only make thing worse if you continue to trade in that manner.

It seems that you do not have a working strategy on hand and you are trying your luck by entering long and short. I will strongly recommend that you take up some courses to learn some working strategy and learn where to place stop losses so that you will never face similar problems again.

Do not be discouraged as this situation happen to many other new traders as well. All you need is to learn a strategy that works and then practice it until you are able to execute it with accuracy.

You will definitely be able to make back all the money that you are losing now by exiting all your position.

However if you choose to trade like what you are doing now, you will never make any money from trading and worse, you will lost more money in the end.

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