Why are Stops So Important?

For reasonably smooth trading, you should create and consistently follow a set of rules. One of these rules is setting up stop loss or exit points. Stop loss during trading is an option. Most traders always use stop loss points, while others never use them for certain reasons. While these reasons are legitimate, reasons for using stop losses are more important.

Unless you have a bottomless pit of capital, stop losses minimises your chances of going broke. Here are some of the main reasons while exit points should be used:

Quick Exit

Sometimes you need to get out of trading fast, so you use this stop loss. Quick exit orders are ready to be filled as soon as they are placed.

Exit During Problems

Technical problems can crop up during trading, like loss of internet connection. The trader would be unable to place his exit orders, but this type of stop loss would keep working.

Automatic Exit

Auto-exit stop loss orders do not need outside intervention to be filled. Obviously, traders cannot be on-trade all the time, so automatic stop losses address this issue.

As mentioned, some traders prefer to go without exit points. Scalpers often trade without an exit strategy because they are in the market for a lightning moment. Others traders do not use exits because they are concerned about stopping trading during surprise price movements that they want to ride out or they don't care for stop losses being visible to the market.