Yes, you can do both. For example, let’s say you take a big position as soon as you start to make money and close it as soon as you get a decent loss. It’s great if the trader can easily figure out the trade’s next action and the strategy will work.
But sometimes a trader has to deal with the situation in a more interesting way. Let’s say that as a trader you’ve always wanted to trade small amounts of money on a single exchange for some reason. You can go to an exchange, buy 0.1% of the stock, and then sell it to your client. That’s basically what stop losses are in many cases.
In other words, stop loss does not take into account the liquidity of the market, rather the position itself is a very expensive trade. On the other hand, it is extremely important to avoid these sorts of trades. Not only would it result in massive losses, but sometimes it can also lead to bad decisions (like not to invest in a new idea).
This article is a follow-up to this topic on my blog:
Why stop losses aren’t enough?
For most of you who read this blog post, stop losses might not be very important to you. That’s understandable, especially when you think about what you are talking about.
But many novice traders will want to keep a minimum stop loss, not in order to profit from the arbitrage, but to be able to afford a stop for their own trades. In most cases, they won’t need a stop loss at this stage unless the size of the position is greater than $10,000 and they have no other options.
If you look further, there are trade strategies that take advantage of the fact that you can’t move the market when you need to. You can use a stop loss in that case simply because you need to make sure that you know on which direction the market is going.
In most cases, stop loss is a better option, not because it saves you money, but because it saves you time. You’ll be able to analyze your positions better and you won’t be in constant shock on the markets.
Some say stop losses are necessary:
The more you trade, the more you are bound to lose.
You’ll learn more and the more experienced you become, the better able you will become to avoid the mistakes that will kill you. But this is only really true if you make a
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