Stop Moving Your Stops

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Unfortunately, also seasoned traders fall into this trap of moving stop loss orders. And if it worked out for you once, it just worsens things for you. Are you doing that? Being aware of why you are doing it and the consequences can be a game changer.

Why do you move your stop loss?

So, you took a position in the wrong direction. This happens to everybody. You see the market approaching your stop loss, and you keep a safer distance from it, moving further away from the market and deeper into your pocket. And then you do it again and again. This usually results in a safe loss of money. More money than you planned to risk on the trade.

You may do it because you have new knowledge or a feeling that you now know where the right place to put your stop is. Confidence is great, but seriously, what new knowledge do you have since you placed the trade? Probably not too much. What makes you think that your new placement, while the trade is live, is better than your original plan, when you didn’t have a position, and were more calm?

The original plan was probably better, more balanced. Your hasty new plan isn’t likely to be better.

Another reason can be a fear to lose the trade. But let’s go back to the plan once again. You undertook a specific risk. Calculated risk is part of the game. Extending the stop loss is a bigger risk, that wasn’t calculated properly.

What happens next?

In the majority of cases, the market continues in the wrong direction for you. Why? Well, remember why you put the stop loss there? If the market will take the opposite direction, you just don’t want to be there, and cut your losses quickly. This logic was probably right, and you just lose more.

This means that you lost more than you intended to. This means that you’ll probably erase your account quickly and won’t have enough chances to improve, win trades and get your act together.

But what if the minority scenario works out? What happens if you move your stop losses, the market doesn’t reach them and then bounces in your favor. There’s a good chance you become over-confident. You believe that you can bend the rules.

So you’ll try to do it again, with a bigger-sized position. This may result in the regular scenario of losing more than you planned, and this time, the plans were more loose.

When you disregard a stop sign on the road, this may result in accident or a fine. The same goes for trading.

So please respect your own stop sign, otherwise you’ll get a big fine and your account will have an accident.

Further reading: How to chose a forex broker in 2011.

Get the 5 most predictable currency pairs

About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

9 Comments

  1. Pingback: Stop Moving Your Stops | PilotFX

  2. Here is a good advice: calculate how high or low the currency pair can go and set a price alert. If the pair reaches that point you can try to get in with a small stop. In many cases you’ll win big. In some cases you will lose a much smaller amount. If the pair doesn’t reach that level that’s absolutely fine. There are not less than 28 major pairs and lots of others. Believe me you’ll have a lot of oppurtunity!

  3. Pingback: Are You Forcing Yourself Into A Position? | Forex Crunch

  4. AndreYoung on

    Hi,
    Very interesting article, on a topic which is most of the time disregarded by so many traders, being novice or with some degree of experience!
    The bottom line i think would be this: if the market aproaches your SL and indeed hits it, you were wrong with your calculations in the first place! there is no point in moving the stop loss in the hope that the market will bounce! as the author mentioned, if you did moved it, and the market bounces in your favour, second timee you might not be that lucky, and you might lose more than you can afford on a single trade! Make a game plan and stick to it no matter what!

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