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  1. #1
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    Can you trade with no stops?

    Hi, traders! Sometimes you can here from anybody - “I’m trading with no stops and I’m closing 95% of my trades with profit”. Looks attractive, doesn’t it?
    In this article, I will uncover some “secrets” of this “high probabilty profit taking” and of course, about it’s unspoken drawbacks.

    According to the “probability theory”, every stream of random data tends to distribute along the “normal distribution”:



    We can observe that 68.8% of data has to fall within one standard deviation, which is equal to around 10-30 pips for fluctuation of price of major currency pairs. The conslusion is that if you set your "take profit" within one standard deviation, you will have around 70% of profitable trades (or more). You are also able to see that according to the normal distribution, probabiliy of the “tail event” (say, rapid change of volatility) is equal to 0.1%, that is highly unprobable. In other words, you will unlikely face this event in your whole life. Is it true? No, that’s not true. Markets tend to be much more volatile and trending substantially longer than it is considered according to probability theory.

    I have made several tests to show you how distribution of profitable/losing trades changes with the change of our stop loss and take profit. Tests are absoultely random, they include absolutely no analysis. I was making one trade after another in a random direction. Take profit and stop loss leves were prefedined.

    Let’s get started.



    1. Test: Profit/loss ratio is equal to 1/1.


    Stop loss and take profit are equal to 10 pips for EURUSD. On a series of 200 iterations, we have distribution looking like shown below:



    What is happening here? We have our equity curve going back and forth. In other words, we generate activity, but have no trading edge. In a long run, such behavior can lead is to losing entrire capital (due to transaction costs).



    2. Test: Profit/loss ratio is equal to 3/1.


    What about 3/1 profit/loss ratio? Can we obtain any profit on a random test in this case? Again, I make 200 random trades on EURUSD:



    You see, that result is negative, but it can be the matter of volatility. In other market conditions, results could have been positive. But low recovery factor of such “trading” can be explained by the fact that we continue trading within 1 standard deviation - our stop is very small and has high probability of being executed, out take profit is also small and has slightly lower probability of being executed. That’s why, we have negative performance. But we have not to be fooled - there’s not enough trading edge here as well. If we apply any analysis, it’s likely that we can improve our results.

    According to my own experience, 3/1 test can show more stable performance, if we move our stop out of the 1 standard deviation and set it, say, on a distance of 30 pips (with 90 pips profit).



    3. Test: Profit/loss ratio is equal to 7/1.


    But if we increase our take profit substantially, guess what happens? It is shown below:



    At the first sight, probability of getting 70 pips profit is substantially lower than for 30 pips take profit, but if you fix 70 pips in a profitable trade, you improve your overall performance! How is it possible? Relative influence of higher (yet, less probable) profit is so that you can turn your trading around and have a trading edge. In statistics, it is called “magnitude”. “Magnitude” is relative influence of a discrete outcome on a whole distribution of results. If you have low probability of event, but substantial magnitude of this event, you can bet of this event, though odds are stacked against you. It explains the fact, that for some trading styles, it is ok to have 90% of losing trades (yet, 10% are very profitable - they cover all the losses)



    4. Test: Trading with no stops.


    Now, let’s see how distribition looks like if we apply no stop and have take profit equal to 10 pips (very probable event):



    You see, we can fix small profits for a very long period of time, but eventually we “catch” long term high or low, setting position againts the market (remember - we don’t have stops, so we let our losers run). If price action is developing against our losing position, we increase our losses and drawdown becomes deeper and deeper. It’s just a matter of time! You can avoid this event for months and even years, but blowing up a captal is unevitable!



    Bottom line:

    High number of profitable trades does not necessarily correlate with profitability. If you hear something like "I close 95% trades with a profit", always ask: "What happens when negative outcome realizes? How much impact on overall perfomance does it have?"

    I hope that this article was helpful! Good luck and have a trading edge!

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    Quote Originally Posted by silverlady View Post
    Never i can not trade without stop loss, i have done this before and now i know it is not the best for nay lover of this market. It is forex trading that is talking and traders working for the best should use stop loss. This does not mean that some traders are not making money without stop loss, it depends on how we learned the market and how we apply what we learned.
    it is about their choice for trading, some want to trade safely with use stop loss and some want to trade with free without stop loss, so there is advantages and disadvantages from their choices and believe that they had understood for this, so the important thing for us that always know for what we are doing and take it as responsibility

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  3. #22
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    if not use a stop loss, you could do a cut loss. very important to limit the loss. I think if traders hold floating minus, he will have emotional stress, and patience will be disrupted, so traders are tempted to enter the market again. so that the accumulation of using large lot size, it is very risky

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  4. #23
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    Quote Originally Posted by ngalapreceh View Post
    if not use a stop loss, you could do a cut loss. very important to limit the loss. I think if traders hold floating minus, he will have emotional stress, and patience will be disrupted, so traders are tempted to enter the market again. so that the accumulation of using large lot size, it is very risky
    I do not know how this is convenient to traders, if i do not use stop loss, i will never be at rest where i am , ad i will be thinking that the market might have taken all my money. That peace of mind is priceless in trading, this is what i am looking forward to get too and i will always be using my stop loss because of that. If you want to cut it instantly, how long will you look.

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    Quote Originally Posted by silverlady View Post
    I do not know how this is convenient to traders, if i do not use stop loss, i will never be at rest where i am , ad i will be thinking that the market might have taken all my money. That peace of mind is priceless in trading, this is what i am looking forward to get too and i will always be using my stop loss because of that. If you want to cut it instantly, how long will you look.
    feeling worried is bigger when the traders do trading without stop loss, but if they have good analysis and management, i guess they have understand it with well so they will not too worry, and i guess the important thing here that they need to set TP with good, and make it easier be touched by the market,

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    Quote Originally Posted by newentry View Post
    feeling worried is bigger when the traders do trading without stop loss, but if they have good analysis and management, i guess they have understand it with well so they will not too worry, and i guess the important thing here that they need to set TP with good, and make it easier be touched by the market,
    Most of time a trader's feel much worry when he not use any strict stop loss in trading. I think we should use stop loss in our trading because without any stop loss use some time our condition could be very dangerous. I not use take profit much in trading but take care of stop loss every time in my trading. As a scalper I never ignore stop loss

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    It is not in my trading agenda, i can do the risk when i do not have enough money, or when i believe i am totally frustrated in trading forex, but it is not a good idea to do a thing like that, forex is basically the place of business, it is what we need to study well before we act, that is how we can win forex, not doing a thing like this.

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  8. #27
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    Quote Originally Posted by newentry View Post
    feeling worried is bigger when the traders do trading without stop loss, but if they have good analysis and management, i guess they have understand it with well so they will not too worry, and i guess the important thing here that they need to set TP with good, and make it easier be touched by the market,
    It is a bad thing in all its entirety sir, the stop loss is essential most especially when the trader want the best results in their trading, the stop loss will not make the trader to lose focus and not make the trader to be emotional, emotion will make the trader bad in what he is doing and the stop los will make emotion to be more.

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    Quote Originally Posted by silverlady View Post
    I do not know how this is convenient to traders, if i do not use stop loss, i will never be at rest where i am , ad i will be thinking that the market might have taken all my money. That peace of mind is priceless in trading, this is what i am looking forward to get too and i will always be using my stop loss because of that. If you want to cut it instantly, how long will you look.
    I was consistent with the loss limit. I use a stop loss too. I do not monitor the chart continues, so that when opening the charts, I would get a take profit or stop loss.

    without a stop loss, I do not calm, because the market can run wild, and gets a big minus floating. we need a stop loss for managing loss

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    Quote Originally Posted by ngalapreceh View Post
    I was consistent with the loss limit. I use a stop loss too. I do not monitor the chart continues, so that when opening the charts, I would get a take profit or stop loss.

    without a stop loss, I do not calm, because the market can run wild, and gets a big minus floating. we need a stop loss for managing loss
    I like your style my brother, the stop loss ca make one to be consistent, it can make one to never lose in the market. Different traders i have used are using stop loss, except some few that are losing their money all the time because of the stop loss they do not use, this is a lesson to them and i hope they can change too.

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    Quote Originally Posted by Value trader View Post


    Bottom line:

    High number of profitable trades does not necessarily correlate with profitability. If you hear something like "I close 95% trades with a profit", always ask: "What happens when negative outcome realizes? How much impact on overall perfomance does it have?"

    I hope that this article was helpful! Good luck and have a trading edge!
    Thank you for share this topic, I once did a test about this case, I have a plan to share the results of my experiment in my trading journal, but I do not have much time to do that, I'm very grateful you shared about the results of your test.

    I change my mindset after I understand it, has a 95% winning trades is does not mean profitable, and has a 10% winning trades is not mean unprofitable, because here there are rules of risk to reward ratio that has a big influence on the results of our trading .
    Quote Originally Posted by cozard007 View Post
    I do not think what you are saying is right. You are trading without stop loss? I do not believe it. It is either two things, Number is that you might be regretting the trades without the use of stop loss, or you have gotten draw down that you can not recover in years. Now, you said you use news trades, are you telling me that all news goes the way you want?
    He say that he cut his losses manually... its okay that he trade without stop loss if he really cut losses manually, both are the form of risk management, but just different method in implement. Stop loss is just a platform tool.

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    If you lose, be patient. If you win, stay humble

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