The Truth About Stop Loss: Why It's Obsolete in jMathFx

Unleash the power of jMathFx and wave goodbye to the outdated notion of stop loss! In a financial landscape fraught with pitfalls and uncertainties, it's time to embrace a game-changing approach to trading. With jMathFx, you're not just mitigating risk; you're seizing opportunities with confidence and precision.

photo Daniel Uzzo
by Daniel Uzzo
A man running with a bag of money leaking coins along the way

In jMathFx, the concept of stop loss is outdated.

Although it was created with good intentions, over the years it has transformed into a tool of financial torture. It has failed. "Stop Loss" now means losing money. It's a tool that has safeguarded very few traders' accounts; in fact, it has often depleted them. There are more accounts it has devoured than those it has saved.

Let's be honest and stop pretending to be moralists with other people's money. It doesn't benefit anyone's wallet. So who uses it? Often, those who use stop loss have devastated accounts and will soon ignore it during their trading sessions, worsening their financial positions. This tool, designed to protect traders' accounts, has proven to be ineffective over time. Its complexity makes it difficult to use, and every time it's employed, the market inevitably strikes it, causing losses and generating a sense of insecurity and frustration. Often, it's the broker itself going hunting.

The stop loss, as it was conceived, brings no benefit because once hit, the market inevitably returns to the trend predicted by the one who placed it. It's undeniable that the trader, after moments of hesitation, will return to the market to recover losses at disadvantageous prices compared to their previous position, thus increasing costs (spread and commissions incurred) and overall risk.

This educates the trader towards a poor market approach. Furthermore, the stochastic processes applied to prices during natural oscillations, along with market volatility and brokers' technological ability to temporarily influence price trajectories, make the use of stop loss extremely difficult. Wherever it's placed, it's inevitably hit!

I remember, several years ago, when I was taking my first steps in this field. Together with a colleague, we opened an account with a broker to try out an automated system. When the bot opened the first trade with a stop loss, we immediately noticed a price discrepancy on the chart compared to other operators (as we had other trading platforms open simultaneously). It was clear that the true trajectory of that price was the level at which we had placed the stop loss. I immediately deactivated the system and clumsily attempted to move the stop loss. To no avail, every attempt to modify the orders was constantly rejected with the banal excuse of "slippage."

It all ended with a laugh. Alongside the incurred loss, we closed the account and it took us over a month to recover the deposit.

Consequently, in addition to exposing the trader to such unfair practices, the stop loss is never guaranteed by industry intermediaries, at least not by serious ones. No broker offers a guarantee on stop loss, which practically equates to not placing it at all. During periods of macroeconomic fervor and high volatility, prices often move so quickly as to generate interruptions and range jumps that can easily surpass the stop loss level, both intentionally and unintentionally. In an instant, you may find yourself executed at the first available market price, which if lucky, could be close to our protection level, otherwise, it could be far off by many figures!

There's no point in complaining... Although a stop loss is placed to protect our money, the reality is that the risk of loss is not eliminated despite the wise use of a tool created specifically to protect us from unpredictable market fluctuations.

Certainly, not placing a stop loss entails the risk of facing significant losses. One day, due to my forgetfulness, I found myself dealing with a loss that took a whole month of work to recover. On other occasions, the stop loss protected me from sudden market trend changes. But it changes little; most of the time, the stop loss causes damage.

Most of the traders I've seen in action don't use it. They claim it's unnecessary, redundant, because they're capable of making drastic decisions at the right moment, of closing in case of loss. But the truth is, they lie to themselves more than they can to those listening to them in that moment. They don't know where to place it because placing it would mean losing. And if they were to place it, once hit, they have no subsequent engagement plans to immediately compensate for the loss. Once the loss is incurred, they petrify, they don't react.

Compared to a few years ago, the current market proceeds at a slower pace, taking twice as long to offer the opportunity to recover from a loss. The term "loss" is no longer confined to money, but also and above all to the concept of "opportunity." With the current market conditions, a loss not only results in a decrease in capital, but also in the loss of an opportunity to increase it. And given the current sluggish market conditions, I would think twice about adding further instruments that undoubtedly will cause further losses. In a slow market, it could be quite some time before another profit opportunity arises.

The stop loss is outdated. It's a concept that's now outdated in the sophisticated minds of those who understand opportunities, the very tools offered by the market. No one uses it because using it entails risks. Its low adoption is due to the risks it entails. It's time to change approach, change method; to think out-of-the-box. Implement operational plans so that a new concept of protection is applied on the market, leveraging the opportunity offered by the market's unpredictability to profit.

A method where, while protecting against unforeseen fluctuations, one uses them to make even more money in complete safety. The trader must have a monetary reason to use protection. And if this protection not only preserves capital in the market but also guarantees coverage and profit, the trader will undoubtedly apply it. That's why in jMathFx, the concept of stop loss is outdated. Because in the jMathFx context, it's possible to use tools and methods to cover ourselves in the market, and in doing so, make money too. Methods immune to slippage, immune to range jumps due to unexpected price regime changes. Methods where it's not possible to apply the "first market price" rule because if the broker did so, they would pay more. Methods that not only guarantee coverage from loss, but also make you money. I'm discussing these methods these days with a series of video training sessions in the "Premium Channel" section, in the jMathFx Academy. Are you in?

Stop losing money... Stop using tools that make you lose money!