All You Need To Know About The No Stop-Loss Forex Strategy
This article will provide you with everything you need to know about Forex trading without a stop-loss. This article will also present you with a no stop-loss strategy that you can use in your trading, as well as, a breakdown of the advantages and disadvantages of these types of strategies.
Table of Contents
Learn What Stop Loss Order Is
Just in case you're unfamiliar with the concept, let's explore what stop-loss means. A stop-loss is an order that a Forex trader places on an instrument, which remains until that instrument reaches a specific price, then it automatically executes a sell or buy action, depending on the nature of the initial order (buy if it was a short order, sell if it was a buy order). Setting a stop-loss is particularly useful for removing emotions from your trading decisions, and keeping a constant watch on your positions, so you don't have to.
However, you may sometimes hear about traders who trade Forex profitably without a stop-loss. In fact, some traders are opposed to using stop-losses at all. These traders rely on no stop-loss strategy to bring them profit. Some of them do succeed, but the majority don't. Before you decide on whether or not to use a stop-loss strategy, you should consider the advantages and disadvantages of placing stops.
Even then, it would be wise to test out your no stop-loss strategy on a Demo account first, before you use it in the live markets. Why don't you click on the banner below to open a demo account and test your skills without losing any funds in the process?
Advantages Of Using Stop-Loss Strategy In Forex Trading
First off, setting a stop-loss doesn't cost you anything. You will only bear costs when you reach the stop-loss price and the sell or buy.
Why is this important?
Well, there are always FX traders who don't want to close a losing trade because they think that the market will move in their favour. But the problem is, the markets are not generally known for moving in the favour of individual traders, so trading Forex with no stop-loss is literally like putting emotions over logic. But keep in mind that stop-loss orders do not guarantee you profit – nor will they make up for a lack of trading discipline. You need to be confident in your trading strategy and stick to your action plan.
The Disadvantages Of Using Stop-loss
Why do some traders disagree with using stop-losses?
Before we look at a no stop-loss Forex strategy, let's consider a few things. In a normal FX market, a stop-loss acts as intended. For example, if you buy at $50 and set a stop-loss order to $47.50, it restricts your loss to 5%. However, in a fast-moving market where prices change rapidly – the price at which you sell can differ from your stop price.
Moreover, a short-term fluctuation may trigger your stop price prematurely. In this case, pick a stop-loss percentage that allows the price to fluctuate. Be aware that you shouldn't set a 5% stop-loss on an instrument that fluctuates 10% or more in a week, because you will most likely end up losing money on the commissions from your stop-loss.
Another common problem is the transparency of stop-loss. There is a game that some market makers play, whereby they run the stops when the price is low enough, then trigger a mass of stop-loss orders. After an instrument is sold at a popular stop-loss price, it reverses direction and rallies.
Please note, Admirals is an execution-STP type broker, meaning that all of its transactions are passed electronically to an execution venue, but without human intervention. Therefore, if you are trading with Admiral Markets, be aware that the aforementioned action can not occur.
Another disadvantage is that you are giving control of your sell order to the system. In volatile markets, this can cost you money. This is one of the reasons why some traders think trading without a stop-loss is better. But novice traders should not take this advice right away. Instead, traders should first try to understand what a stop-loss is - by educating themselves on the basics, and then moving onto the strategies.
Before you continue your journey into the world of forex trading, we'd like to let you know that our specialists in Admirals have prepared an advanced webinar series just for you. Register for our webinars and learn all you need about the latest trends, strategies and trading tools that can you achieve your financial goals. Click on the banner below now!
No Stop-Loss Order | Guide And Strategies
If you want to trade Forex successfully, you must follow an effective money management strategy. The majority of traders choose to use stop-losses. Yet stop-losses are not always effective, and can often lead to failure for day traders. If you are willing to attempt trading without a stop-loss, there is a specific no stop-loss Forex strategy.
But please note that despite the similarities between Forex and the stock market – Forex traders rarely use the same strategies as equity traders. To potentially make a return on your investment in the stock market, you could purchase shares and hold them until the fundamentals change. However, good Forex traders do not simply enter trades based on the results of technical analysis. They also have to consider the underlying economic, financial and fiscal factors. You can track such economic and financial developments through our Forex calendar.
A rule of thumb for trading without a stop-loss is to follow trends. There are two major aspects to the long-term direction of a currency pair – the economic fundamentals, and the country's geopolitical conditions. The fundamentals may include the central bank's interest rate policy, the balance of payments numbers, and the government's political stance.
The standard principle is that if a country's economy is stable, its currency should appreciate against currencies with weaker economies. Fundamental analysis provides a long-term outlook on a currency. The trader simply has to wait for pullbacks to go long on a specific currency. If a trade goes negative, it can go to a greater degree compared with when high leveraging is in play.
However, there are some exceptions to this rule. If a correction is coming, take a small loss by exiting previously negative trades, and reverse positions to take advantage of the changing trend. If you decide on trading Forex without stop-loss, it is important to use profit-protection strategies.
Trailing Forex Stop-Loss In MT4 And MT5 Platforms
Stops don't just help to prevent losses, they can also protect profits. For instance, let's take the trailing stop-loss as an example. Trailing stop-losses protect profits that are already on the table. When the trade has made significant gains, place a trailing stop between the entry point and the current price action. This allows the current price to continue, in case the market offers more profit. At the same time, it helps to ensure the trade will not lose money.
Next up is the limit order. A limit order exits parts of a trade when the market expects a certain pullback, but does not hit the profit targets. To avoid large losses, many Forex traders use tight stop-losses. However, this frequently ends in multiple small losses that can quickly accumulate. So, is it actually possible to trade Forex profitably without stop-losses?
Yes. But for such a strategy to work, you need to keep several things in mind, including trading in the direction of the trend, whilst also avoiding exploiting margin/leveraging facilities, and only being bullish on currencies that are fundamentally strong. If you want to try a no stop-loss strategy, you have to understand how stop-losses work.
Final Thought About The Stop-Loss Order
Stop-loss is a popular tool in the Forex trading community, and you can potentially trade profitably without it. Make sure to check out additional trading options with the feature-rich MT5 trading platform, so you can test out what you've learnt, with all the best tools at your disposal.
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Frequently Asked Questions (F.A.Q)
What is a stop loss order in forex trading?
How does a stop loss order work in forex trading?
In forex trading, a stop-loss order is an instruction given by a trader to their broker to automatically sell a specific currency pair once the price reaches a predetermined level, known as the stop-loss price. The primary purpose of a stop-loss order is to limit the trader's potential losses if the market moves against their position.
Other articles you may find interesting:
- Trading Risk Management: Top 10 Forex Risk Management Tips
- Forex Trend: How to Predict The Forex Market
- Day Trading Stocks Guide for 2023
About Admiral Markets
Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.