When it comes to managing risk in trading, the debate over hard stops versus manual stops is a common topic of discussion among traders. At Live Traders, we firmly advocate for the use of hard stops within the trading system. We’ve seen too many traders fall victim to the pitfalls of using soft or flexible stop losses, leading to unnecessary losses and frustration. Here, we’ll delve deeper into the advantages of hard stops and why they should be an integral part of every trader’s risk management strategy.
Traders often express concerns about the visibility of hard stops to market participants such as specialists and market makers. While it’s true that certain orders may be visible in the market, the impact of this visibility on individual traders’ stop loss orders is often exaggerated. Market participants have far larger concerns and priorities than targeting individual traders’ stop losses. Additionally, using stop market orders for hard stops eliminates the need to worry about the visibility of your orders, as they are executed immediately at the prevailing market price.
Furthermore, hard stops provide traders with a disciplined approach to risk management. By setting predetermined exit points based on their trading plan and risk tolerance, traders can avoid the emotional biases that often lead to poor decision-making during volatile market conditions. In contrast, relying on manual stops may leave traders susceptible to hesitation or indecision when it comes time to execute an exit, especially in fast-moving markets.
Another key advantage of hard stops is the automation they provide to the trading process. For swing traders or investors holding positions for multiple days, monitoring the markets minute by minute to manually execute stops may not be practical or feasible. Hard stops allow traders to automate the exit process, providing peace of mind and freeing up time to focus on other aspects of their trading strategy.
In conclusion, the use of hard stops is essential for protecting capital and managing risk effectively in trading. While the decision to use hard stops ultimately depends on individual trading styles and preferences, incorporating hard stops into the trading system can provide numerous benefits, including increased discipline, automation, and peace of mind. At Live Traders, we strongly recommend the use of hard stops with STOP MARKET ORDERS and discourage the use of soft or flexible stop losses due to the risks they pose to traders’ capital and overall trading performance.
