Surprising as it may sound, some whale trackers argue that using a stop-loss (SL) might actually be misguided. Perhaps you've been led to believe SL is essential, or maybe you've heard it from voices that benefit from your missteps in the market. Let’s dive into why this view challenges conventional trading wisdom.
At first glance, we use stop-losses to safeguard our assets and limit potential losses. But let’s compare it with leverage settings—specifically, isolated versus cross leverage. By default, leverage is set to "cross," where your entire futures wallet backs each trade. In "isolated" mode, only a specified margin backs the position. If you think about it, isolated mode functions similarly to a stop-loss. For instance, if you're comfortable with a $30 loss, you could either set an SL at $30 or simply trade with a $30 margin in isolated mode. Both methods cap your potential loss at the same amount, achieving essentially the same outcome.
So, why use a stop-loss when isolated leverage can achieve the same result? Here’s where psychology comes in. Stop-losses create a sense of security, making losses feel routine and manageable. When we rely on SL, it’s easy to believe that it “saves” us if the trade goes against us. But with isolated leverage, a $30 loss feels like a direct hit to your trading strategy. This subtle psychological trick normalizes losses with SL while making isolated losses feel more impactful, perhaps even discouraging.
The real purpose of an SL is rooted in technical analysis, designed for specific scenarios where the market’s direction shifts after reaching certain levels. While SL exits your trade when a trend reversal is detected, isolated leverage can also serve as a strategic tool, highlighting failed trades without the comfort blanket of “saving” your assets. In the end, every penny lost feeds the larger market players. So, stay informed, dig deeper, and understand that in the trading game, your loss could be another’s gain. Don’t just follow the crowd—think critically and trade wisely.
