Look over your EURUSD  trade journal for this year.  Between 19 March, 2010 and 15 June 2010, how many losses did you have?  How many of those losses were on short trades?  I lost a few, to be certain.  Every one of them that cost me money  had a small stop loss.  How much did your tight stops cost you last year?

I opened a short position on EURUSD on 3/19/2010 and held that position until 6/15/2010.  It never even came close to the stop loss.  I pulled 1.272 pips from that trade.  You can see this trade, and the rest of my verified live results at MyFXBook.com.  The stop loss on the trade was pretty wide by most folks standards, but pretty small by mine.  This trade is not exactly “typical” of my trend following trades, but it is about an 8 point buck in hunting standards.  I’ve pulled 1,700+ pip trades, and even a 4,000+ pip trade on the GBPUSD with my trend following systems.  The 100% honest, and absolutely verifiable (by paying subscribers) results for the entire portfolio can be seen in my results page.

My point is that plush stop loss orders reduce the risk of your trade stopping out.  I use modest leverage (usually 1:1 – 3:1)  so that if I do stop out, I haven’t lost much.  I seldom ever see a stop out.  My trend following systems generate buy and sell signals to get me out of trades way before that happens.  The stop loss does play an important role when market weirdness occurs though.  I’m not talking about news releases.  Those never come close t one of my stop losses.  I’m talking about those massive world-events like unexpected wars or the second coming.  You know, those once in a lifetime events.

Small stop loss trading has its place.  I do my fair share of trading with razor thin stops.  But it’s much more busy than I care to be on a daily basis.