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Small stop loss

Small stop loss

 

There is a common mistake that cannot be ignored at all - these are small stop-losses. Setting very small stop-losses of 10, 20 and even 30 points is absolutely unproductive. If you and I try to set a small stop on our deal, then in fact it is tantamount to the fact that we are in a hurry to quickly fix a loss, literally as soon as it appears before our eyes. And movements of less than thirty points in the market in general, as you know, are often "random noise". And on such volatile (nimble) pairs as GBP / JPY, EUR / GPY, sometimes even movements up to 50 pips are all “random noise”. The sequence of price fluctuations within this “random noise” cannot be predicted. Whoever and whenever suggested various theories on this matter, as a rule, their accuracy is akin to the accuracy of predictions of the winning numbers that fell out in the lottery. This is not at all surprising, because the very process of small fluctuations is really, in the main, random. Naturally, we would not really want the market to take out our stops and reduce our deposits during this “random noise”.
We must not forget that the big banks that dominate the market are not at all averse to hunting for the small stops we have set. It costs them nothing to move the market ten, twenty or thirty points with a big buy or sell. It is no longer so easy to move prices by more points. Therefore, if you and I want to achieve a positive end result, then the desire to set a small stop is our biggest enemy. Reinsurers who place small stops take much greater risk than those who place slightly larger stops at a reasonable distance, out of the reach of random price movements or the deliberate play of big banks against small players.

The first axiom of a correctly placed stop loss: it should not be triggered as quickly as possible, but only if the direction of price movement changes significantly. That is, the deal should be closed with a minus not earlier than it becomes clear: the chances of price movement in our direction are illusory or rather random. In other cases, as a rule, it makes no sense to close a deal with a loss.


 

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