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I am just a beginner in Forex and I just learned that the "Stop Loss" orders are placed by traders.

However, I guess without a Stop-Loss we can make benefit in almost any trade. Because, many charts are sine curve. So, we just need to wait enough until the price comes back to the same level or even higher and then we gain.

However, by setting a Stop Loss Order the trade will be closed automatically when the price passes the lossing thershold. I do understand that the risk is the price goes lower and lower, but i think, the risk is very low. For example, how big is a risk that the Euro constantly loss its value against GBP or USD and it never improves?

I mean, the risk looks very small, simply because it never happens that the currecncy of big economies loss its values forever. You can imagine that even after very bad events like 9/11 also US/EUR value reduced but later it bounced back to its level.

In other word, i think, if we wait enough, we can gain in (almost) any single trade. Isn't it ?

So, if it is true, isn't it better that we do not consider any Stop Loss Order in our trades ?

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3 Answers 3

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“Need” isn’t a particularly helpful way to look at this.

People can trade FX without stop-loss orders, so such orders are not a matter of need, but more of an available service.

If you are prepared to hold, with the view that even an adverse market will revert, and if you are prepared to accept (the consequences of) the risk that the market doesn’t revert, and if you want to hold through adverse market movements, then stop-loss orders might not be useful to you for the reasons you’ve outlined.

But if you have a view that the market can move against your position, and do so over an extended period, then a stop-loss order allows you to recoup some of your capital so that you can reinvest when the market has gotten as bad as you think it will go. You then accept the risk that the market corrects before you buy back.

Alternatively, you might want to accept a small loss on a tanking investment if you can switch the rest to what you consider a rising investment. Stop-loss orders can help you manage that strategy.

Financial instruments usually have their own blend of risks and rewards. Each alternative or extra service can bias the risks and rewards, even turning the risk-reward profile upside down or introducing new factors to consider. Seek appropriate professional advice before implementing any financial strategy. (Note that this answer is not professional advice of any sort.)

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I mean, the risk looks very small, simply because it never happens that the currecncy of big economies loss its values forever.

With low risks (only trading amongst the big economies) comes low rewards.

  • IOW, you're not going to make much money.

Unless you use leverage (which means "borrow money"). Then you can make some serious coin with just slight changes in value.

  • But high rewards come with... high risks. In leveraged trading, a slight drop can wipe you out.
  • Thus, traders set Stop-Loss orders so they don't get wiped out.
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  • hmm, but your answer, does now cover the first part: if we wait enough, we can gain in (almost) any single trade. Isn't it ?
    – Jimmy
    Commented Aug 11, 2021 at 2:46
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    @Jimmy the counter to "if we wait enough" is that "a slight drop can wipe you out." This is because, "in the long run, we're all dead".
    – RonJohn
    Commented Aug 11, 2021 at 3:07
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    @Jimmy also, look at the GBP:EUR and GBP:USD exchange rates. It's done nothing but fall.
    – RonJohn
    Commented Aug 11, 2021 at 3:09
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    @Jimmy in 1980, the GBP hit 2.45 USD. In the 40 years since then, it has never returned to that value. If you had sold dollars to buy pounds back then you would still be waiting for the right moment to trade back.
    – Simon B
    Commented Aug 11, 2021 at 21:52
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Yes, it is possible. Just that you need an entry point close enough of the moment the market will reverse or right after it has reversed(you being on the market side). And, of course, you need money management.

There is an Expert Advisor - developed by Rob Booker - on the market that doesn't use Stop-Loss. It has been tested by many so far(including myself, I'm using it on live account). Look into that, it might be what you're looking for.

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