Sometimes we get it wrong, whether relying on fundamentals or technical analysis, and at least a stop loss will catch you as you fall. But it’s a bit like having automatic braking on a car - sometimes you need to accelerate out of trouble, not come to a grinding halt in the middle of the road when everyone around you is still going apace.
Effective Management of Losses During a Major Crisis
Obviously, you can avoid the sudden stop by setting the pip stop reasonably high, so that it only triggers when something major is happening out there, like the impact of the Greek crisis on the Euro in 2012, and you know that this is way beyond the normal weather that any sensible currency sailor would go to sea in.
Automated Algorithmic Trading
The other issue, of course, is that the market can see your automated stop loss once entered. The old game, in the days flesh and bone market makers were ‘running the stops’, triggering stop losses set at predictable cluster points, and effectively manipulating the market within that range. Prices would inevitably increase and rally soon after this.
Some argue that the best compromise is to have a system of price alerts, rather than automated stop losses on the computer. At least that way you have a chance to apply judgement and experience, and if you're working with just one or two of the majors, that does develop quite quickly, in deciding how to respond to an adverse movement.
With the technology we all carry around with us it is easier than ever to get instant access to our trading tools and respond appropriately before anything too catastrophic happens. The real people at risk, who might genuinely benefit from automated stop losses, are those that don’t actively manage their positions and don’t either use or respond to the alerts that are available.
On the other hand, they might be better off finding another game; with the majors seldom moving more than a percentage point in a day, where is the fun if you’re not throwing the dice when you want to? But I guess that is the whole story of foriegn exchange trading - isn't it?
Author Bio: Richard Newman is a copywriter and poet with a bachelor’s degree in English Language and Creative Writing. He has worked in various marketing & creative roles since 2001. His aim is to publish at least one novel before he dies – so far he has had 2 poems published internationally in print as well as some online. In his professional capacity, he currently works for an advertising agency in London.