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Qw Q asked:
what is the flaw in not using stop losses but instead risking only two percent of your account everytime ina trade and wait for it to eventually be profitable? (what are the chances that you get margin called when you put ina 1000 dollar trade with a 50 000 account?)
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Whatever your system of entry and exit, there are four sorts of results:
- Small wins
- Small losses
- Big wins
- Big losses
As winning or losing is essentially random, the only way a system can be profitable, is by cutting the big losses before they become big. That is why you need a stop loss.
Your question about the margin call is impossible to answer, without knowing your leverage.
This is a great site for videos on stop loss strategy:
It also has a realy cool economic calendar
This strategy works and it is how I used to trade. I would make a good educated guess considering all the time frames and enter a trade that required a small amount of margin. Basically, what the market did in the past is what it will do in the future! So even if the trade is not going your way, just hang onto it and eventually it will make you profit. This strategy doesn’t work most of the time if a trader gets greedy and risks too much at once though. I used this strategy until I heard of Forexeasynow and their trading strategy which turned out to be even better.
The best analogy to answer this question is imagine that you are a pedestrian. When you walk you watch out for the rock, the rock doesn’t watch out for you. If you walk expecting the rock to avoid you, then you will get hurt.
Similarly, when you place a stop on your trade, you expect to read the market and place your stop according. Don’t expect the market to dodge your stop. It will not.
Now, getting to your question, let’s continue the analogy. When you step out of your house not knowing where you are heading and what are the routes that would take you there, you might as well don’t leave your house.
Similarly, if you trade without knowing what are your stop and target, you might as well stop trading. Saving the money that you send to sponsor your broker’s office rent.
If you trade without knowing where your stop and limit are, I believe it is because you haven’t have a comfortable grasp on the market psychology and the support and resistance levels yet. You could definitely improve on this through practice, experience and education. Trading without confidence is a dangerous game!
Good luck trading!