Had a conversation with a.n. other about why I traded very small time frame with quick take profits.
They told me it really isn’t the best way to trade and very costly too in terms of spread and commissions. To be balanced I said that is fine but I can identify positives and negatives in both short term and longer term trading.
I went on to say the obvious for me
Positives: +ve Swaps, limited screen time, less trade costs to potential gain ratio.
Negatives : less frequency of opportunity, increased risk, -ve Swaps…………….
Ok that is as far as I got when a.n.other took offence “what do you mean increased risk, my risk is clearly defined with my stop loss”.
Ok so rather than carry on with the quoutes…
There is more to risk than just considering your SL. The guy gave no thought to time in the market as an extra component to his risk or the fact that the entire balance of his account was at risk.
The time element is obviously increased exposure to the market. The longer the exposure the greater the probability of a catastrophic event happening. Also a catastrophic event can quite literally be a tweet to some accounts. Bare that in mind. I have had trades that have been well away from the market and in substantial profit only to come back to zero due to unexpected breaking news. When force majeure type events occur the reality is your SL may not save you. If there is no liquidity at the level of your SL it will eat through your account until it finds an opposite order match or your account goes to zero whichever happens sooner. There are ways to try and mitigate that additional risk by just having sufficient in the account to cover your trade requirements with respect to SL and margin but even then the salient point is your risk is never just your Stop Loss and since the tighter regulation bringing increased margin requirements, many people have had to have more on deposit to trade the same size they did before the regulation. Again that can be mitigated if you choose to trade in other jurisdictions like ASIC, FMA etc
So whatever way you decide to trade always give consideration to how the market can clobber you.
Normal losses are what they are, normal. All traders have them. Being bludgeoned by the market isn’t normal. There are trader graveyards containing thousands who believed a Stop Loss would be their saviour.
This is not having a go at longer term traders, there are many successful ones out there but clearly the guy I spoke to took it as an attack. I think the attack came because he hadn’t considered the extended exposure is a real component of the overall risk. Obviously Pro long term guys understand that element and have it factored in, they tend to have their profits at risk more so than their hides !