Stop-Losses: You’re damned if you do, you’re damned if you don’t

A mid-week update… stop-losses were hit within 1 day on all pairs except USDCHF (which I then took a 100 pip gain on anyway.) So essentially trading is done for this week.

Within another day if there had not been stop-losses, EURUSD, USDCAD, AUDUSD, and GBPUSD would have all hit their T/P. USDCHF also got very close. USDJPY isn’t down a heck of a lot more now than if I had not put a stop-loss on it at all.

I might be doing some trading between now and Friday to recover, but I won’t be publishing results until Friday like usual.

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~ by yarcofin on June 12, 2008.

2 Responses to “Stop-Losses: You’re damned if you do, you’re damned if you don’t”

  1. Stop-losses seem like an automated crutch — a way to be lazy, if you will. If you have the opportunity, evaluating the trade personally seems like a better option (though I guess if you’re trading 1/5/15 minute, that’s unreasonable).

    Would it be best, though, to only have stop losses on a currency that you expect a long-term opposite that of the short term trade?

  2. Yes a stop-loss is good if you are going to be away from your computer and don’t want to risk losing more than a predetermined amount if things suddenly turn, but it also takes out some of the trading psychology. When you have a pair that is going down, you will often assume that you just bought early and it’s going to turn around any time now… even when you are down $100-200+ (2-5% of account value doesn’t seem like a lot), you will still want to hold because you can’t accept that you were wrong (recall that I am still holding PNP :P.) Trading psychology is something complex and illogical that you can’t really understand until you have traded for yourself for a while.

    What you describe could be a good use for a stop-loss, if you overshot the trend and bought too late when it was about to turn. But the main thing I would consider the stop-loss being for is UNEXPECTED news outside of your control, even if all your indicators were right and you are going with the long-term trend. Say for example you bought the Swiss Franc and Switzerland unexpectedly gets nuked tomorrow out of nowhere. Or even considerably less drastic and predictable occurances, such as people suddenly waking up and realizing the housing/credit crisis in the US and USDCAD suddenly takes a 300+ pip crash in one day.

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