Trading Without A Stop Loss Is The Quick Way To The Poorhouse

One of the most basic errors inexperienced forex traders make is trading without using stop losses. However this is one of the most important lessons you will learn as a trader because a solid stop loss strategy is vital if you want to make long-term profits.
A lot of people start trading the markets and do okay until a trade suddenly moves sharply against them. This can easily happen when trading forex because certain pairs can move a hundred points or more in a matter of minutes, particularly after important economic data announcements. This can result in a large loss of capital and can even wipe new traders out completely.

Some of these people will have been scared off the markets altogether and will probably never be drawn to forex trading again, but others will realise that they need to implement tight stop losses in order to preserve their capital and make money in the long run.

Indeed a solid stop loss strategy can make the difference between making and losing money. For example if you target 50 points per trade and have a stop loss of 50 points also you may find that having a tighter stop loss of say 25 points may increase your overall profits.
It obviously depends on your trading strategy, but for the most part it's generally better to set a target price that's further away than your stop loss. This is because this way your winning percentage of trades doesn't need to be so high in order to make decent profits.
The best strategy in my opinion is to let your winning trades run as long as possible. You can either leave them open until the price move seems to be running out of momentum, or you can do what I do and close half the position quite early for a decent enough profit and let the other half run, moving the stop loss to your initial entry point so it's essentially a free trade.
Whichever strategy you employ, the important point to remember is that you must use stop losses if you're serious about becoming a successful forex trader.

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