Should I Be Trading with a Stop Loss?

Some traders elect to stop out for a small loss. They literally swallow the loss and move on to find

Every trader I know has been involved in a bad trade. When I say bad trade, I mean a trade in which you were confident that the market would yield some profit in a day or two or even within a day BUT it did not. As soon as you took the trade, the market went against you. All of the trade analysis you did before taking the trade made a lot of sense but the market decided to go the other way.

What Do You Do in These Situations?

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– Well, some traders elect to stop out for a small loss. They literally swallow the loss and move on to find other opportunities. This makes perfect sense.

Other trades believe in their analysis and decide to let the market do its thing. They know deep inside that their analysis is correct based on past performance or certain setups they have been trading for a while. They generally set a bigger stop loss usually above or below an H4 or a daily swing. If that level is broken, they know that the market decided to go opposite to their analysis. This method also makes perfect sense.

Few traders (like me) decide not to place a stop loss in certain trades (NOT ALL TRADES). Why? Who in their right mind does not use a stop loss? Isn’t this what every trader/instructor taught us to do? Why go against the crowd? This is a very legitimate question.

I think it all comes down to your trading personality. I am a person who hates to lose. I love accumulation and I would hate to give anything back to the market. If this is your style of trading, then continue reading.

In order to be profitable using this non-stop-loss method, you should be willing to:

– Take an initial small trade size compared to your account’s equity. My initial trade size is around 0.02 lots in a $10,000 account. You might be saying that it will take forever to make any money in this market and this is completely false. Your job here is to accumulate as many pips as you can in the shortest amount of time. Some days you will end up with $10 profit…other days you may hit $50…some days you will end up with $0. BUT if you do this everyday, you will on average make around 5% – 10% a month.

I am usually not around when those trades trigger. I usually do my daily analysis in the morning before London opens on the Daily, H4 & H1 time frames. I immediately figure out which pairs are good for trading on that particular day and launch the Finch or NNS robot (available for TFL lifetime members) to take the trades for me. Those robots look for divergence setups and take the trade accordingly.

– In my daily analysis, I put lines around major support and resistance zones on the D, H4 and H1 and activate the robot on M5 or M15 for that particular pair.

– My profit targets are usually small…around $3 to $5 per trade. I am here to collect pips as fast as I can and move on.

In certain situations, the market decides to zoom across those major support and resistance levels and my trade will be a bad trade. I will be sitting on a drawdown (however, it’s that kind of drawdown that you won’t lose sleep thinking about since your trade size is small). The market can literally go against me several thousand pips without me worrying about the trade.

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So, what to do when these situations occur:

– Keep calm. There is no point in being frustrated, the market will do its thing no matter how long you sit down and watch the charts.

– Walk away. Go do something else. Watch another chart, etc.

– The finch robot is designed to take a second trade for you when a similar divergence trade sets up a certain number of pips away from your initial first entry and it will get you out in profit when the accumulated profit of both positions is positive. (The second trade size and pips away from 1st trade and profit in dollars are the parameters you need to setup when you attach the robot to your chart)

– The NNS robot is designed to take up to 5 trades for you when a similar divergence sets up a certain number of pips away from each entry and it will get you out in profit when the accumulated profit of all positions is positive. (All of those parameters are set by you when you attach the NNS robot to your chart).

– I personally like to use the NNS robot since it usually turns any bad trade out into a good trade given you are willing to wait for it do its job.

– The distance from your initial trade to the 5th trade can range between 500 – 700 pips depending on the currency and how volatile it is.

– On each level you increase your trade size by 3x or 4x so your average entry price is suitable in case you are caught in a vicious trend. You will be waiting for a small pullback to get out of all positions at a net profit.

The robot has eased my life considerably as I don’t have watch the charts to take the perfect entry. Prior to the release of the robots, I used to manage those trades manually and it was a similar process. I remember I got stuck in an AUD/JPY long trade back in November 2014. The trade went against my initial entry by 1300 pips. However, due to the small trade size and knowing exactly when to place additional trades, I was able to close out the trade in February 2015 at a decent profit. Yes, it took 3 months, BUT I was able to turn a real bad trade into a good trade given patience and discipline.

Do you have what it takes to trade without a stop loss? Do you have the patience and discipline? If yes, then welcome to the club.

Good trading and may the pips be on your side.

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