So, who are the losers or have fewer brains: those who use stops or those who don’t?

If a trader is glued to the monitor (often those are scalp traders), he may not put regular stops, but they always use (should use) disaster stops. Why? A regular stop for a scalper is not the most preferred option, since it’ll be hit frequently. Instead, traders employ own eyes as first level stops: once a scalper sees that it is time to leave a trade he pulls the trigger and exit (no need to wait for a stop to be hit).
But stop orders must still be there! Scalpers place (should place) disaster stops at some distance from the price action in order to avoid at least a portion of the market noise. Further placed stops allow scalping trades to mature while mini-profits are being chased.

Disaster stops - these are a must for any trading position! Disaster stops are put far away from the market price and represent the maximum allowed loss a trader is willing to take IF there is a disaster happening in the financial world. No one can foresee catastrophes, like, nature global disasters, terrorist attacks, political strikes etc  - these factors are able to make a country vulnerable in seconds. Guess what happens with your trading platform and your account? The platform will freeze, while the account is going to melt down.

You must always have a disaster stop. If this helps you to embrace the importance of the mission, just imagine that the second after you place a stop a global Internet network will collapse :)))))) and won’t be “repaired” until next week. The phone line of your broker will be so busy, you will be waiting for days in line to hear a voice on the other side. Your only chance to save an account would be to buy a ticket and pay your broker a visit :)
I hope that by now you’ve got the message.

Now, back to earth and let’s talk about traders who trade with large time frames.

Protective stops are a must for position traders who use large time frames. Large time frames (3-4 hour charts and up) are difficult, actually impossible to monitor on a “glued-to-a-screen” basis. That’s why stops are needed to protect the capital from sudden shifts in the market that could bring losses larger than expected. While being away from the chart, a trader must be confident that his capital is immune from unwanted losses. On the large time frames choosing the best stop order is a relatively easy task as bigger market picture can be better analysed. A well placed stop loss on a high time frame is seldom hit wrong, e.g. when a trader is stopped out there is usually a real reason for that confirmed by a reverse in the trend.

An extra care should be applied to trading positions which are left overnight. Stops should always be in place. That’s the rule for your well being, well sleeping and well eating afterward.

If today I wasn’t able to convince you to trade with stops, please consider at least making one habit - if you go away from the screen, place a stop order! This way you will never learn what it is like to lose a large portion of your account in no time, or even worse - get a margin call and be left with little to no money to continue trading.

** Forex Dark Lord **

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