[Education] You Are Dumb For Not Using A Stop Loss
I always thought that stop losses are useless. Whenever I see price taps me out, and go in my direction. Whenever price comes close to my stop loss, the spread will somehow widen and take me out, and go in my direction. I was always angry about this.
“The broker must be trading against me! I must hide my stop loss!”
I stop using stop losses. For some trades, I won because price couldn’t tap me out and go in my direction. I thought I was a genius by not trading with a stop loss. I became confident. This worked until it didn’t work. It was NFP. It’s 10 seconds away from news release. I was trading a $1,000 account. My trade was in $8 drawdown. I looked at the chart, knowing that I will close the trade if it goes against me. The price became very volatile.
5…4…3…2…1…
Nothing happened. The price feed seemed to have lagged. A few seconds later, I saw an enormous bullish candle, against the direction of my trade. The $8 drawdown became $200 drawdown. I got wrecked. I’m supposed to close the trade at a 1% loss, and it became a 20% loss.
It’s fine. After a strong impulse, the price will retrace, right? I hoped for the price to make a bearish retracement. But every minute passed, and the chart prints more bullish candles.
I closed the trade at a $435 loss. What’s supposed to be a $10 loss turned out to be a $435 loss, 43x more than what I risked.
Types of Broker
When I started trading, I didn’t even know the existence of A-Book Brokers or B-Book Brokers. They do make a lot of difference in trading.
A-Book brokers route your trades directly to the forex liquidity providers, who in turn routes them to the interbank market.
B-Book brokers will trade against you. our profits are their losses, and your losses are their profits. There is a clear conflict of interest here.
The problem here is that you deposit your money into brokers without reputations.
Finding a reputable broker will reduce the probability of them purposely taking out your stop losses. But if you think about it, why would they want to take your $10 stop loss to ruin their reputation?
Your trade must be deep in drawdown often for your broker to manipulate your trades. You should relook into your strategy instead of blaming your brokers.
Impact On Psychology
Trading with a stop loss gives you a peace of mind. Imagine that I had use a stop loss on my NFP trade, I do not need to stalk my trade. I don’t need to worry that the server lagging, which made me unable to close my trade. Without using a stop loss, I can’t close my trade when price hits my stop loss level. This too can happen if your internet connection lagged or is down during that crucial period of time.
Your psychology must be very strong to trade without a stop loss. Believe me. You will wait for a few seconds to close. Hoping that trade will turn in your favor within that few seconds. You will end up losing more.
Trading with a stop loss is good for your trading psychology. You know that whatever happened, you will lose what you’ve risked. You do not need to stress that you might risk too much on a trade.
Trading is a marathon, but many of you have the wrong impression that this is a get-rich-quick hustle.
Consider trailing your stop loss when you’re in profit or set them to breakeven when the price moved.
Remember, anything can happen in the market. You might be in profit now, but the price can shoot past your stop loss the next minute. If you’re not fast enough to react, you will close your trade at an unfavorable price.
Taking Partial Profits
Taking partials is better for you. You don’t need to worry if there are any situation where you cannot close your trade in time.
Taking partials is important if you don’t want to shift your stop loss. Assume that your trade runs 1R in profit, you can close half. This yields 0.5R. You can choose to keep your original stop loss. When price comes back to take you out, your result will be breakeven.
Always remember, a small win is better than a full loss. Consistent small wins will be beneficial in prop firm challenges. Time limit will stress you out. Consistent small wins make you feel like you’re progressing towards passing the challenge.
Risk Management
There are a lot of ways to profitability. You can either have a high win rate, but low risk-to-reward ratio, or a low win rate, but high risk-to-reward ratio. I’m sure you want a high risk-to-reward ratio trading strategy. Before that, you have to understand how your psychology works. Are you able to execute the same trade that fits your trading strategy again and again? You need to follow your plan despite losing 10 or 20 trades in a row. Will you start to doubt your trading strategy? Your account balance going lower and lower every time you take a trade.
Once you’re trading live, you have to accept the risk for each trade you’re taking. You have to accept that you can be wrong more than you’re right. You cannot control the outcome of your trades. You can control the amount of risk you take per trade. I recommend risking 1% or lower for each trade. The goal here is to focus one capital preservation. By limiting your risk to 1% a trade, you are able to keep your account balance safe. Compare this to people who risk 20% or 50% a trade. In a few losing trades, their account balance will be very close to $0. These are the gamblers that do not have the right risk management skills.
News Trading
I always thought that trading news is the same as trading at any time of the day. Price will go to wherever it needs to go. Since my backtest don’t take into consideration of news, I can trade news in live market too. But after the incident where I lost 43x more than what I risked, I stopped trading news.
If I have an open position and in profit, I will close half of my position and shift my stop loss to breakeven.
If my position is in drawdown, I will close all the position. The risk of slippage does not justify the reward. If your normal RRR is 1:3 with a 33% win rate, the risk of slippage can turn your potential RRR to be 1:1 because you can potentially lose 3% instead of 1%.
Rewarding Journey
When I started to focus more on capital preservation, profits comes to me. It’s counterintuitive. It’s normal to think that to be profitable, we need to focus on profits.
Having a strict trade management helps a lot with my psychology. I know how many losses I will need to lose my account. Knowing this, it helps with my psychology as I give myself the room to make errors and take losses.
I know that my trading strategy is profitable in the long run. I know how much drawdown I can expect from my trading strategy.
To be like me, you need a lot of backtest data. I have 1,000 trades logged, which is why I am comfortable trusting my trading strategy.
Following to my trading plan allows me to not focus on the noises and my emotions. I trade mechanically.
This has allow me to pass various prop firm challenges and gotten various payouts. I have another payout that’s coming in this Tuesday.
I’ve always wondered what’s the feeling of constantly getting withdrawals. Now I know how it feels. I’m progressing ahead to leaving my 9 – 5 job. My 2023 goal was to get funded and get 1 payout. It’s not even the end of June 2023 yet, and I’ve achieved my goal.
Right now I’m accumulating more accounts from all my payouts. It will take awhile, but I will reach my next milestone of managing $600,000 soon enough.
Accountability Partner
The hardest part of trading alone is sticking to your own rules. In a day job, you report to your manager and boss. When you’re trading, you’re reporting to yourself. It is hard to be accountable to yourself.
Having an accountability partner or a mentor is the best solution to solve this problem.
Do you know why legends like Oprah Winfrey has a coach? A coach gives guidance and a holistic review on your performance. They act as an accountability partner. They push you and hold you accountable for your actions.
Having someone there for you when you feel down and unmotivated can be motivating.
It’s hard to find a suitable mentor or accountability partner given the nature of the financial market. There are a lot of scammers out there selling course materials which you can find online. You need to know that the person selling the course or mentorship does not rely on sales for a living. But instead, he must be earning most of his income from trading. Look at his content, see if they resonates with you. Look at his track record, are they afraid of showing 3rd party verification? Do they only show you screenshots of trades that have already happened? Do they only show their results on excel sheet?
If you’ve been following me on my journey, you would have seen my progression. I’ve manage to break free of my unprofitable self to a consistent profitable trader now.
Remember, trading is not an easy hustle. It take years of hard work, losses and, breakeven to achieve consistent profitability.
Stay consistent. Stay safe. Success is just around the corner.
If you enjoy such content, feel free to click the like button and subscribe for more.
Let me know what are your thoughts and learning points in the comments below so others can learn from you too!
Please let me know what kind of topic you would like to read next :)
“The broker must be trading against me! I must hide my stop loss!”
I stop using stop losses. For some trades, I won because price couldn’t tap me out and go in my direction. I thought I was a genius by not trading with a stop loss. I became confident. This worked until it didn’t work. It was NFP. It’s 10 seconds away from news release. I was trading a $1,000 account. My trade was in $8 drawdown. I looked at the chart, knowing that I will close the trade if it goes against me. The price became very volatile.
5…4…3…2…1…
Nothing happened. The price feed seemed to have lagged. A few seconds later, I saw an enormous bullish candle, against the direction of my trade. The $8 drawdown became $200 drawdown. I got wrecked. I’m supposed to close the trade at a 1% loss, and it became a 20% loss.
It’s fine. After a strong impulse, the price will retrace, right? I hoped for the price to make a bearish retracement. But every minute passed, and the chart prints more bullish candles.
I closed the trade at a $435 loss. What’s supposed to be a $10 loss turned out to be a $435 loss, 43x more than what I risked.
Types of Broker
When I started trading, I didn’t even know the existence of A-Book Brokers or B-Book Brokers. They do make a lot of difference in trading.
A-Book brokers route your trades directly to the forex liquidity providers, who in turn routes them to the interbank market.
B-Book brokers will trade against you. our profits are their losses, and your losses are their profits. There is a clear conflict of interest here.
The problem here is that you deposit your money into brokers without reputations.
Finding a reputable broker will reduce the probability of them purposely taking out your stop losses. But if you think about it, why would they want to take your $10 stop loss to ruin their reputation?
Your trade must be deep in drawdown often for your broker to manipulate your trades. You should relook into your strategy instead of blaming your brokers.
Impact On Psychology
Trading with a stop loss gives you a peace of mind. Imagine that I had use a stop loss on my NFP trade, I do not need to stalk my trade. I don’t need to worry that the server lagging, which made me unable to close my trade. Without using a stop loss, I can’t close my trade when price hits my stop loss level. This too can happen if your internet connection lagged or is down during that crucial period of time.
Your psychology must be very strong to trade without a stop loss. Believe me. You will wait for a few seconds to close. Hoping that trade will turn in your favor within that few seconds. You will end up losing more.
Trading with a stop loss is good for your trading psychology. You know that whatever happened, you will lose what you’ve risked. You do not need to stress that you might risk too much on a trade.
Trading is a marathon, but many of you have the wrong impression that this is a get-rich-quick hustle.
Consider trailing your stop loss when you’re in profit or set them to breakeven when the price moved.
Remember, anything can happen in the market. You might be in profit now, but the price can shoot past your stop loss the next minute. If you’re not fast enough to react, you will close your trade at an unfavorable price.
Taking Partial Profits
Taking partials is better for you. You don’t need to worry if there are any situation where you cannot close your trade in time.
Taking partials is important if you don’t want to shift your stop loss. Assume that your trade runs 1R in profit, you can close half. This yields 0.5R. You can choose to keep your original stop loss. When price comes back to take you out, your result will be breakeven.
Always remember, a small win is better than a full loss. Consistent small wins will be beneficial in prop firm challenges. Time limit will stress you out. Consistent small wins make you feel like you’re progressing towards passing the challenge.
Risk Management
There are a lot of ways to profitability. You can either have a high win rate, but low risk-to-reward ratio, or a low win rate, but high risk-to-reward ratio. I’m sure you want a high risk-to-reward ratio trading strategy. Before that, you have to understand how your psychology works. Are you able to execute the same trade that fits your trading strategy again and again? You need to follow your plan despite losing 10 or 20 trades in a row. Will you start to doubt your trading strategy? Your account balance going lower and lower every time you take a trade.
Once you’re trading live, you have to accept the risk for each trade you’re taking. You have to accept that you can be wrong more than you’re right. You cannot control the outcome of your trades. You can control the amount of risk you take per trade. I recommend risking 1% or lower for each trade. The goal here is to focus one capital preservation. By limiting your risk to 1% a trade, you are able to keep your account balance safe. Compare this to people who risk 20% or 50% a trade. In a few losing trades, their account balance will be very close to $0. These are the gamblers that do not have the right risk management skills.
News Trading
I always thought that trading news is the same as trading at any time of the day. Price will go to wherever it needs to go. Since my backtest don’t take into consideration of news, I can trade news in live market too. But after the incident where I lost 43x more than what I risked, I stopped trading news.
If I have an open position and in profit, I will close half of my position and shift my stop loss to breakeven.
If my position is in drawdown, I will close all the position. The risk of slippage does not justify the reward. If your normal RRR is 1:3 with a 33% win rate, the risk of slippage can turn your potential RRR to be 1:1 because you can potentially lose 3% instead of 1%.
Rewarding Journey
When I started to focus more on capital preservation, profits comes to me. It’s counterintuitive. It’s normal to think that to be profitable, we need to focus on profits.
Having a strict trade management helps a lot with my psychology. I know how many losses I will need to lose my account. Knowing this, it helps with my psychology as I give myself the room to make errors and take losses.
I know that my trading strategy is profitable in the long run. I know how much drawdown I can expect from my trading strategy.
To be like me, you need a lot of backtest data. I have 1,000 trades logged, which is why I am comfortable trusting my trading strategy.
Following to my trading plan allows me to not focus on the noises and my emotions. I trade mechanically.
This has allow me to pass various prop firm challenges and gotten various payouts. I have another payout that’s coming in this Tuesday.
I’ve always wondered what’s the feeling of constantly getting withdrawals. Now I know how it feels. I’m progressing ahead to leaving my 9 – 5 job. My 2023 goal was to get funded and get 1 payout. It’s not even the end of June 2023 yet, and I’ve achieved my goal.
Right now I’m accumulating more accounts from all my payouts. It will take awhile, but I will reach my next milestone of managing $600,000 soon enough.
Accountability Partner
The hardest part of trading alone is sticking to your own rules. In a day job, you report to your manager and boss. When you’re trading, you’re reporting to yourself. It is hard to be accountable to yourself.
Having an accountability partner or a mentor is the best solution to solve this problem.
Do you know why legends like Oprah Winfrey has a coach? A coach gives guidance and a holistic review on your performance. They act as an accountability partner. They push you and hold you accountable for your actions.
Having someone there for you when you feel down and unmotivated can be motivating.
It’s hard to find a suitable mentor or accountability partner given the nature of the financial market. There are a lot of scammers out there selling course materials which you can find online. You need to know that the person selling the course or mentorship does not rely on sales for a living. But instead, he must be earning most of his income from trading. Look at his content, see if they resonates with you. Look at his track record, are they afraid of showing 3rd party verification? Do they only show you screenshots of trades that have already happened? Do they only show their results on excel sheet?
If you’ve been following me on my journey, you would have seen my progression. I’ve manage to break free of my unprofitable self to a consistent profitable trader now.
Remember, trading is not an easy hustle. It take years of hard work, losses and, breakeven to achieve consistent profitability.
Stay consistent. Stay safe. Success is just around the corner.
If you enjoy such content, feel free to click the like button and subscribe for more.
Let me know what are your thoughts and learning points in the comments below so others can learn from you too!
Please let me know what kind of topic you would like to read next :)
Prop Firm Funded Trader
Find out more about me here: linktr.ee/kt_fx
Find out more about me here: linktr.ee/kt_fx
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