Stop-losses Can Bite!

Sophia Todorova has a background in teaching and psychology, and as such relishes the idea of assisting new traders on their journey to Forex trading success. Technical Analysis is her passion. The charts speak, and she listens.


Stop-losses can be your best friend, or your worst enemy. Used incorrectly, they’ll ensure that you get stopped out on a spike, just before watching a trade move in your favour. This aspect of risk management is critically important. It is my opinion that traders should plan their trades well, and determine stop placement before actually entering the trades. This ensures fill participation in acknowledging, and accepting potential loss on the trade, and by extension, proper position sizing appropriate to our risk parameters.

Firstly, losses are inevitable in Forex trading; however, if you find yourself in a situation of constantly being stopped out on trades, only to see the market  play out the way you had anticipated, especially if your entry was good, then it is very clear that the stops are being placed too close to the market. In this case, perhaps you should consider using wider stops and compensating for the added risk by reducing the usual trade size. Also, due to the fact that currency pairs vary in terms of volatility, tendency to spike, and also in the average distance they move on a daily basis, the trader needs to ‘learn’ the pair(s) being traded.

A trader’s style of trading is an important consideration when placing stop losses. For example, stops for a scalp/day trade should be different from that of a trade taken for a swing, based on the daily, or higher timeframes. It is also important in cancelling/replacing (manual trailing) stops on a swing trade, to allow room for the market to wave naturally, and not to adjust stops too early. This allows room in the trade in order to take full advantage of the setup. Often, while trying to save on stops, we eventually incur more losses due to premature stop-outs. Initially, it is good to place stops above/below key resistance/support levels, BUT these levels tend to get retested, and so it is important to keep them beyond these areas. I like to scale out of my swing trades in thirds or halves, and I generally move my stop to breakeven after the first target is reached. This might not necessarily suit everyone, but so long as the trade management allows you to maximize the profit potential of trades while the same time protecting your equity, you may very well have found the Holy Grail of forex trading.

Thanks for reading, and I would appreciate hearing your own opinions on the subject of stop-losses. Safe trading, All! 🙂

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  • Arm239

    Thanks Sophia. I always place my stop Loss just above the last swing high. Am I correct? If it is too far I skip that trade.

  • John Mulligan

    Excellent info for trading the FX market Sophia!  I can relate to all of it.  I like to scalp and swing trade also, but need to difine better and discipline myself.  If I am entering into a trade, I think it is better to firstly be in the direction of the trend for that time frame, but I need to keep my position size smaller and it is easier to keep my stop further back and not risk so much.  If the trend continues in my favour, then I think the odd scalp is fine in smaller amounts, when a pullback reverses to continue in the direction of the trend.  I realize for myself, like many in the Forex market, they want to make money fast, but that thinking is not good for your account.  Also like you mention certain pairs trade differently and some have much more volatility, so good to be aware of that ahead of time.  Your arcticle reinforces good trading in every way for the forex market Sophia, so thanks for that!

    John M

  • Amadimoy

    Scalping is not trading. It is gambling. I don´t trade not even 1 hour-chart, however, I think that anything short of 1 hour signal is fake. Making money requires patience.

  • Thanks for reading and posting your comment, Danfranko. Safe trading

  • Thanks for sharing, Amadimoy. You seem to have found a method that works well for you. Have a great day!

  • Well done, JR. Thanks for sharing

  • Hi Biglumy…Thanks for your comment. All the best in your trading. Try to get only the best entries, and identify targets ahead of your trades, and that might help. I’m glad you found the article useful. Have a great day.

  • You’re welcome, Gerardo. Yes, I know it’s frustrating. The good thing is that we can work at improving it. Thanks for the comment!

  • ‘re welcome, Rob. Thanks for reading 🙂

  • You’re welcome, Katyosborne. Thanks for reading! 🙂

  • Katyosborne

    Thank you Sophia, that was very helpful.