A Typical Trader’s Story – Part 1: Setting Stop Losses

Filed under: Learn Forex Trading |

I believe that there is a process that most traders go through before they get to a place where they can be successful. Some never make it through this journey, and give up before they reach their destination. Therefore, I thought it might be useful, if you are currently on this journey, to hear from someone who has already been there and done it.

 

To begin with, you probably start putting trades on here and there just because a chart looks good. You probably start out trading the stock market because you know some of the companies, and trading forex just seems way too complicated and mysterious. So you pick some companies that you are familiar with and buy a few shares. They go up a few ticks and you are in profit. You are a trading genius! Then it starts to go down and you’re carrying a loss. You try not to worry and remember that you are a trading genius. The stock goes down some more, and you start to worry. You’d be happy now just to get out at breakeven. The stock goes down even more. There is no point selling now, you may as well wait and see what happens. You buy some more at a cheaper price because it must start to go up soon. Now you’d be happy to get out with just a small loss… and so on and so on… You eventually take a big loss.

 

I took a loss of 1500 GBP on one stock called Dragon Oil when I first started out trading. It was a lot of money for me at the time; but it was the best lesson I ever learned. Since then, I have always set a stop loss and never moved a stop loss once a trade is one. That is lesson one. Set a stop loss and never move them (except to lock in profits).

 

- To be Continued

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