Necessity of stop loss
This is an old topic, and everyone seems to know it. But it is precisely because it is too old that it is easily overlooked by investors in trading. Huge losses are almost always caused by no stop loss. Such examples abound. However, the futures market is performing the same tragedy every day.
Volatility and unpredictability are the most fundamental characteristics of the market, the basis of the existence of the market, and the causes of risks in trading. This is an unchangeable feature. There is never uncertainty in trading, and your analysis and prediction are only a possibility. Transactions based on this possibility are naturally uncertain. Uncertain behavior must have measures to control its risk expansion, and stop loss will naturally occur.
Stop loss behavior is a natural occurrence of human beings in the process of trading, not deliberately, but an instinctive reaction of investors to protect themselves. The uncertainty of the market makes the existence of stop loss necessary and important. Successful investors may have their own different trading methods, but stop loss is the same feature to ensure their success, just as healthy people have different lifestyles, but they will treat diseases when they are sick.
▌ Why is it so difficult to stop loss?
The necessity of stop loss is well known, but why is it so difficult? Stop loss is like cutting meat. It is human instinct to pursue happiness and avoid pain. Cutting meat is naturally unbearable pain for human beings. However, this is only a superficial phenomenon. The uncertainty of the market and the fluctuation of the price often make you doubt whether you should cut the meat. If the meat is cut correctly, you may be secretly happy. If you cut it wrong, there will be not only physical pain, but also a kind of pain of being fooled. Psychological blow is the most unbearable pain for investors.
Don't be afraid of the bear market, turn a blind eye.
The lesson of cutting the wrong meat will make investors very cautious about cutting the meat, and the repeated market prices will also make investors often cut the wrong meat. The market always gives people a hope, which, like an anesthetic, constantly paralyzes investors' cautious hearts. In this state of anesthesia, stop loss is naturally difficult to implement. However, this hope is so slim and uncertain, but as long as there is a glimmer of hope, investors will naturally not cut their meat easily. In addition to the pain of cutting meat and the hope given by the market, it is difficult for investors to stop loss. The uncertainty of right and wrong is also an important reason why it is difficult to stop loss.
Strictly speaking, I'm afraid we can never be sure whether our trading is in the right state or the wrong state. Even if we make a profit, it is difficult for us to decide whether to go out immediately or wait and see, let alone be trapped. The human instinct of pursuing perfection will make every investor unwilling to win a few points less, and even more unwilling to thank a few points. God won't tell you if you should go out at once! Individuals are too weak in front of the market, and all decisions have to be made by themselves. This is a very difficult job, which objectively makes it difficult for investors to stop losses.
How to correctly understand stop loss
It is difficult for investors to accept the wrong stop loss. How to correctly understand the stop loss is essentially how to correctly understand the wrong stop loss. I believe that if God tells you that you are wrong, you will definitely stop immediately, but the point is that no one can tell whether this stop loss is right or wrong.
We also have to accept the wrong stop loss. Stop loss is a kind of cost, the cost of finding profit opportunities, and the price that must be paid for trading profit. This kind of price is only large and small, and it is difficult to distinguish right from wrong. If you want to make a profit, you must pay a price, including the price caused by the wrong stop loss. If your stop loss is correct, it doesn't mean that your trade is correct, and your trade is correct. What does this mean?
Face our mistakes frankly, including mistakes in the opposite direction of trading and wrong stop-loss behavior, and regard them as an integral part of trading behavior, which is indeed an integral part of trading process. Don't shy away, let alone be afraid. Only in this way can you trade normally and finally make a profit. This is my understanding of stop loss, including my understanding of wrong stop loss. Let bygones be bygones. We can guarantee that every transaction is brand-new and full of hope.
How to use stop loss
The use of stop loss is by no means as simple as what is written in the textbook. Stop loss is more an art, which varies from person to person and from investor's trading style. Just like there is no unified trading mode and no unified stop loss method in the world, just like there is no perfect trading and no perfect stop loss.
Stop loss is an integral part of investors' trading behavior, serving the trading system, not just controlling risks. Stop loss is a personalized behavior, which is first adapted to investors themselves, not the public and the market. Mature investors have their own trading mode, and accordingly, there are also stop-loss methods that match this trading mode. You can't separate the stop loss from your trading pattern and use it alone. Stop loss cannot exist independently, and an independent stop loss has no protective value.
Lions protect themselves in a completely different way from rabbits, and so does trading. Traders who look at the graphic structure have their own stop-loss settings, traders who look at the trend line also have their own stop-loss prices, and traders who look at the waves also have their own stop-loss settings, which are completely different. And the same trading method, because investors have different risk-taking ability and different transactions, can also have different stop-loss point settings. Here, the author will not list them one by one, but simply introduce how to operate his own stop loss.
First of all, the stop loss point is dynamic, not static, and the stop loss is adjusted accordingly with the fluctuation of the price. Secondly, different stop-loss points are different, but the total loss is controlled between 3% and 5% of the total funds rather than the entry funds. Assuming that there is 65438+ 10,000 yuan of funds, if the stop loss point is only 10, then the author may enter 50 hands. If the stop loss point is 50 points, then only 10 hands will enter the market. If the price is favorable, the stop loss will increase accordingly. If it is unfavorable, the author will enter the market immediately, no matter right or wrong. The author's stop-loss method matches his own trading mode, which contains many details, but in any case, it serves the trading system, not just controlling risks. This is the real value and significance of stop loss.