Trading Currencies with no stop loss orders is like rolling the roulette wheel in Las Vegas. Why? Because you are taking a HUGE gamble! The stop loss order is probably the most important thing you can do when trading currencies and every currency trader must know about this and implement it with every order. However, many traders fail to use a stop loss order and those are usually the ones that are here today and gone tomorrow.

The words are simple to understand and their meaning equally facile – just as it says – stop loss order. It’s a command to take action and quit the order that’s moved in the wrong direction. The stop loss order’s purpose is to prevent a trader from taking losses too heavy to burden if the market moves against them. How come?

Emotion!

Being a technical market, trading currencies has to be solidly based upon technical analysis of it. Human beings are fatally flawed emotional creatures and, despite the numbers staring us right in the face, there’s ever the urge to fly with our feelings, go with a gut instinct and so let our hearts dictate our decisions, rather than our heads.

When you ask currency traders the reason why they don’t use stop loss orders you are told that their biggest fears quite often include one where, despite a trade moving against them, instinct is telling them it is fundamentally sound, a reversal in their favor is bound to happen. Using a stop loss order on the trade might dangerously pre-empt their anticipated reversal and the position would automatically close with no chance of capitalizing on the gut-felt sure thing opportunity that was waiting before it was destroyed by the untimely interruption of the well-intentioned trading tool.

Trading currencies with Forex is a business of numbers. The numbers do show that sometimes this may happen but it is uncommon, in fact, highly improbable, most unlikely. The numbers do not lie. Failing to utilize stop loss orders will probably mean, more often than not as is the likelihood, unexpected large losses perhaps due to your absence from the trading floor or panicky stoicism while the losses grow ever larger as you watch the action unfold before your horrified gaze.

Shoulda, woulda, coulda…but didn’t. The latter currency trader in the scenario outlined above became trapped by fear and emotion, in the belief it would reverse and all could come good. Seeing relatively small losses develop into something so big the compulsion to remain in a losing situation to recover something, anything, is overwhelming. Ultimately the inevitable has to be recognized, accepted and acted upon – the mistake, unwillingly admitted, needs to be rectified and the position closed before catastrophe occurs.

Not even the most venerable and experienced currency traders make a profit on every trade they conduct; losing a trade is a fact of trading Forex. Nevertheless, the only sure way to succeed with currency trading is to limit the level of a losing trade and putting a stop loss order on each and all trades you undertake. Protect yourself against detrimental movement in the market, potentially devastating losses and emotions ruling your intellect, take advantage of the stop loss order when trading currencies.