Forex trading is a high leverage game where even the tiniest mistakes could result in losses. Losses are an inevitable part of trading but losing money by making mistakes is something that is within your control. You cannot afford to make mistakes while trading because you may not have a second chance to fix what has already gone wrong. But, what if there is one factor that may extremely save some time and forestall mistakes? Forex traders never take the effort to analyze & understand what a stop loss is and how important it is for their trading career.
What is a Stop Loss?
If the word “Stop-Loss” had a preposition, it would be “The Barricade to Disaster”. Stop Losses are designed to limit losses especially when you have a position open and the market goes against you. Consider an example. Let’s say you’ve bought a stock at $40 per share and you set your stop loss to $38. If the market sees a downfall and touches your stop loss value, the shares you possess will be immediately sold at that price thus minimizing your losses. Imagine what would happen if a stop loss wasn’t placed? The loss would have been to a greater extent and sometimes devastating. Know the pros of having a stop loss while trading.
Know How much You Risk:- With Stop Loss in place, you exactly know how much you are risking if there is a reversal in the trend. Uncertainty is something that rules the market, and you cannot afford to lose more than you can. Stop loss fulfills the purpose of making sure that you lose only what you can.
Stop Loss Saves You from Emotional Imbalance:- Emotions are the worst and vile enemy for a forex trader. If you are bound to carry your emotions with you while trading, you can very well assure yourself that you will hit the rock bottom soon. A stop loss can limit your losses and thereby assures you a sense of relief when you notice that things could have gone a lot worse.
You Need Not Be Glued To Your Screen:- Some traders feel uncomfortable to resume with their usual activities when they have an open position fearing losses. Well, stop loss helps you to resume your normal routine as it will never let the market sabotage your trading career.
The Free Insurance Policy:- It costs you nothing to initiate a stop loss. You grow confident if you are aware that you have the protection you need from losses. Stop loss is a simple tool which many traders either ignore or are unaware of. Now, since you know what a stop loss is and how beneficial it could be to your trading account, never again do the number one mistake of avoiding stop losses while you trade.