If you don't set a stoploss in trading, how much money can you actually make or lose?
Surely you have heard almost everyone recommend using a stoploss while trading in forex and
stock market, but how bad can a trade really get if you don't use a stoploss?
Well, to find out, I took 100 liive trades on different forex pairs, and let them ran
for 24 hours straight.
These 100 trades were divided into 4 types.
25 with stoploss and profit target, 25 without any stoploss but with a profit target, 25
with stoploss but no profit target, and 25 trades with nothing.
So, which kind of trade do you think made most money?
The trades with no stoplosses should make the most money right? as only thing they can
achieve is the profit?
Well, you are not half wrong, because the first trade I took on the Euro USD pair with
a stoploss, was lost.
But same trade without the stoploss was in profit.
Remember, I took all trades in the direction of the long term trend.
I used the 200 period moving average to find the long term trend and took 4 different types
of trades at the same time on a single pair and on the 3 minutes time frame.
Stoploss was set at a good enough distance from the entry by using the trading views
position tool, and in this paper trading example, I'm using a 10000 dollars account, and only
risking 1 percent of that account per trade.
So the first trade with the stoploss and profit order was lost, and the trade with no stoploss
was won.
It made a profit, but at one point, the no stoploss trade was down almost 200 dollars,
which is two times more drawdown than the last trade.
Nevertheless, after 24 hrs, the trade was in profit.
The trade with no profit order on the other hand, had made a loss.
Looks like the trades with no stoploss orders were making money, because the last type of
trade with no profit and no stoploss order, was up by almost 1350 dollars at one point.
Now obviously, not everyone is going to exit at the maximum profit.
In reality, not everyone is going to stay in a trade till the exact time of the reversal.
But just for this experiment, lets assume that there was a genius 400 IQ trader, Bill
the first, who was able to exit at the max profit.
Even though Bill the first is happy, because he made money where other traders didn't by
using a stoploss, do you really think he can handle the max draw down in the up coming
trades?
The first few trades that had no stoploss and profit targets, were really lucky for
bill the first.
The trades that were lost by using stoploss orders, were actually profitable and made
more than 2000 dollars.
Now remember, the maximum profit potential for a normal 1.5 to 1 reward risk ratio trade,
is 150 dollars.
So it appears that the trades with no profit or stoploss orders were actually making a
lot more profit, at least for now.
Bill is probably bursting with happiness.
On GBP USD pair, the trades with a fixed profit targets made 150 dollars, whereas the trades
with no profit targets, had a profit potential of 2100 dollars, which is 14 times more than
the max potential of fixed profit orders trades.
But don't be fooled by looking at these good profit numbers yet, and don't let your mind
change about the usefulness of the stoploss orders.
Because after looking at the rest of the results, you will not wish to be a trader like Bill.
If we look at all the trades that had stoploss and profit orders, you will notice that highest
loss potential these trades had, was only 100 dollars.
100 dollars in this example, is only 1 percent of the entire 10000 dollars account.
But if you look at the results of the trades with profit target but no stoploss, you will
notice that the maximum profit potential is same as the previous type of trade, but not
everything is same.
Here, the maximum loss potential was more than the potential profit.
and even though almost all trades were winners, the total profit the winning trades made,
was not very high compared to the losing trades.
24 out of 25 trades were in profit, but because one losing trade made a loss of 3440 dollars,
the total loss skyrocketed.
3440 dollars loss is around 34 percent of the total account balance.
If you think 34 percent is very high for a potential loss, you will be shocked after
looking at the rest of the results.
The trades with stoploss but no profit target had the highest profit.
Since the max loss per trade was capped at only 100$, the trade with stoploss but no
profit target, was most effective among the last three types.
This kind of trade is very similar to a trailing stoploss trade.
In a trailing stoploss trade, you trail the price as long as possible to catch a bigger
profit.
I did similar thing in my liive V WAP trading videos.
Instead of setting a profit order, I was simply trailing the price as it went in my favor.
This kind of trading style can be a lot profitable if you know what you are doing.
It was profitable in this case.
But if you are absolutely new to trading, you should probably stick to the fixed profit
and stoploss orders.
That's because you don't want to continuously look at your running trades as a new trader,
otherwise there is a chance that you will end up booking a small profit after thinking
with your emotions.
In this case, the strategies with fixed reward to risk ratios didn't make the highest profit,
but they are very much profitable with a good trading strategy, as we have seen in the strategies
tested 100 times series on this channel.
Check them out if you are new.
As we saw earlier, the trades that had no profit and stoploss, were looking very profitable
at the start.
And in the first half, they were the most profitable kind of trades than the rest.
They were easily crossing maximum potential that was 20 times higher than the fixed profit
trades.
But then, there was this one trade.
At one point, when all other trades were in profit.
The trade with no profit and stoploss targets, had a max potential loss of 22800 dollars,
in just 24 hrs. 22800 loss is 228 times more than the normal fixed stoploss trades, and
22800 is 228 percent of 10000 dollars.
10000 dollars was the total account size in this paper trading example, so basically,
Bill the first, just blew up his account.
In this example, the trades with no profit or loss orders, had the highest amount of
profit potential, but also had the highest amount of potential loss. and because of that,
the trades with nothing, gave the worst performance in this example.
Now, if you look at the data carefully, you will notice that the same trade with profit
target but no stoploss, didn't made the same loss, because it had reached its profit target
first.
But if it had not touched it first, and if price had reversed immediately after taking
the trade, this trade would have also blown up the account.
So the conclusion of this experiment is something that you have heard many people say, use a
stoploss if you don't want to end up like bill the first with negative balance in the
account.
The point of this video was to demonstrate and show the beginner traders, what trading
without a stoploss looks like.
I hope this gave you a perspective.
Like the video if you liked it.
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And if you want to learn about setting a proper stoploss, or if you want to see the real win
rates of trading strategies that we have tested 100 times, check out other videos on this
channel, or in the Trading Rush App.
Thanks a lot for watching.