Trading without a stop loss is like catching a train without a ticket. 9 times out of 10 you feel might make a small gain, but the 10th time when you get caught you pay a hefty price.
Going in to a position without knowing where you’ll cut your losses ventures out of trading territory and in to the gambling zone. No-one is right on 100% of their trades, so how can you not have a plan for the occasions you are wrong (And you will be wrong often)?
‘What about just having a level in mind?’
Some traders believe that hard stop losses are more likely to be hit and prefer to watch the price to manually close the position when it hits a certain level. There are two issues with this method.
The first is that it requires you constantly be watching your positions which is a very time consuming task. I prefer to trade my 15 minutes a day, place my stop losses, and enjoy my life.
The second is that it requires an immense level of discipline that most people don’t have (myself included!) to close exactly at the level you initially said. It is too easy to let the market run a little further, then a little further, and before you know it your loss is bigger than you wanted and you have no exit plan.
Imagine if you bought Oil in 2015 without a stop loss? You would have to have very deep pockets to not have gone bust here. The rookie trader, not using a stop loss, holds with hope and ends up taking a huge hit whilst a disciplined trader takes a minor loss and moves on.
Stop losses are the biggest decision that will determine if you are a profitable trader or not. Learn how to place stop losses and increase your chances of success