Why You Should Use a Stop-loss
- Most disciplined Forex traders use a stop-loss.
- Before opening any positions, you should know exactly where you will place your stop-loss.
- Once you set this up, you should never lower it to keep a position open.
- Keep in mind that the more transactions you make, the more you will encounter situations where you believe your losing position will become profitable.
- Some traders have a hard time accepting failure, which can cause them to place bigger bets, and potentially incur bigger losses.
- For instance, In 2012 JPMorgan Chase & Co.’s chief investment office announced a loss of at least $6.2 billion tied to derivatives trading.
- Bruno Iksil led the office’s charge to set up complicated positions involving credit derivatives – placing bigger trades in response to the losses.
- These positions grew so large that certain investors claimed they were distorting credit indexes.
- Amid this disruption, Iksil got the nickname ‘London Whale’.
- While you probably won’t be at risk of being in any situations like this – it illustrates the value of having a stop-loss to automatically close a position.
- Setting a stop-loss takes the emotion out of the situation.
- However, while establishing a specific price and then sticking to it is integral to using stop-losses, you should take a different approach for setting take-profit points.
- If you are just starting out, it’s wise to establish a take-profit point for every trade, and then refrain from modifying it.
- With more experience, you can start modifying your take-profit points – especially if you have also begun setting your stop-loss to generate profit.
- But regardless of whether you are a rookie or veteran trader – you should always know your profit target before you commit to a trade.
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