Beginners often ask themselves the question of whether or not to adopt Stop Loss. Indeed, when you just start trading, you tend to think only of Take Profit… and forget the rest. However, the Stop Loss is a major point to avoid losing everything in a few seconds. We had already defined what a Stop Loss is and how to use it. Today we go further by observing the difference between a manual or automatic Stop. Find out why and how to use this option to limit your losses wisely:
A guarantee of safety
Stop Loss is essential in trading, simply because without this option, we will accumulate our losses without necessarily realizing it. Although every trader hopes to win with every bet, losses are, indeed, obligatory passages, especially for beginners. And the least you can do is to know when to stop at the right time to limit the damage. Thus, even if some traders do not particularly appreciate this option, it is in their interest to use it so as not to risk losing everything. Stop Loss is, in a way, the security lock in trading.
Stop Loss manual or automatic?
But if Stop Loss is essential during trades, what is the most advantageous: manual or automatic Stop Loss?
Disadvantages of automatic stop loss
Stop Loss is automated when placed at the same time as the opening of the trade. The trader defines in advance when the Stop Loss will be activated and, when the conditions are met, it starts automatically. Thus, the disadvantage of this technique is that, as soon as it is affected, the Stop Loss will always be activated even if the price trend resumes in the right direction.
In some cases – and more often than we think – it happens that we regret the placement of this Stop Loss since the price is starting to move in the right direction. Blinded by the evolution of their trade, some traders forget, moreover, that they have placed a Stop Loss, and tend to find other explanations. Most of them go so far as to make their broker feel guilty, thinking that it was the broker who looked for their stop sign, just as the course was starting to improve.
What you have to understand, however, is that everything depends on the trader’s analysis and trading technique. The Stop Loss is not placed by chance, but must depend on price dynamics and studies previously carried out by the trader. It should not be forgotten that trading is a game where the losses of some play in favour of others. It is therefore essential to carry out a thorough analysis rather than to bet blindly.
Advantages of automatic stop loss
Although the placement of an automatic Stop Loss is not without risk, it has a much greater advantage: the bond.
When you opt for manual Stop Loss, you are, in fact, led to hope. We tend to believe that despite our losses, the price of our assets will surely rise one day… and we wait. We cannot accept the idea that we have lost and, quite often, we prefer not to cut our trades, even if our situation is critical. And yet, when you let a loss grow, it grows, and you run for disaster.
When you set an automatic Stop Loss, however, there is no such problem because from the very beginning, you get to the head that sooner or later, the Stop Loss will be activated. When he is affected, it is then easier to say to yourself that for the next trades, you will have to improve your techniques. Our future results will then automatically be better.