🤑Large stop loss or small stop loss, which one is more suitable for you? Let's take a deep look at the advantages and disadvantages of these three stop loss strategies.
Risk of not setting a stop loss: When the market fluctuates in the opposite direction, you may face unbearable huge losses and suffer the greatest psychological pressure.
The test of small stop loss: Frequent stop loss may make you miss potential profit opportunities, but it can better control risks.
Large stop loss strategy: Large stop loss can maintain your position during violent fluctuations, but it requires you to have sufficient patience and money management skills.
Which stop loss strategy do you prefer? Feel free to share your experience and insights!
I believe that when all traders first enter the market, the concept of stop loss is the last thing they want to mention. It seems that stopping loss means "failure", "incompetence", and emotional breakdown. But if you really want to gain a long-term foothold in this market, stay close to the market, and capture the profit space of the trend, I prefer to look at stop loss neutrally.
⚠️01 No one can achieve long-term victory without stop loss
We must be objective when entering this market, whether you have a certain foundation or rely on external forces. There is no perfect transaction, no strategy that will make a 100% profit. The market fluctuates in a myriad of ways. As time goes by, the alternation of long and short positions and the evolution of trends are all things we cannot fully control.
Even if you treat the market as a casino game, it is still a probability gamble, not to mention that the market has its own logic. Our original intention is to seek deep-level trading logic, make reasonable deductions, and make trading plans with the highest probability possible. This implies factors with low probability that we cannot grasp. Once the market does not fluctuate according to our deductions and the risk nodes are realized, we will definitely face stop-loss arrangements.
If you abandon stop loss, then your positions that fail to keep up with the market rhythm will become infinitely magnified risk exposure. Small losses will become big losses until you can no longer bear it. At this time, when you look back at the risk point, the result of stop loss is already "hot cakes". Compared with your willful behavior, objective and rational stop loss can help you reduce losses, that is, intercept the "profit" of big losses.
⚠️02 Stop loss is a reasonable risk control method to avoid big losses
If the frequency of our daily transactions is not very low, as little as one or two transactions a year. In the long run, under the guidance of a mature trading system, we should adopt strategies with a high probability of profit and strictly control strategies with a low probability of stop loss. In the end, we can take the right path of slow climb from the comprehensive results. If your historical trading data shows that you run away from profitable strategies with little profit, and the stop loss strategy expands the loss and holds the order, your comprehensive evaluation will tend to fluctuate into negative values in the end.
From a long-term perspective, traders should accept stop loss. This acceptance means, first, being grateful for this function so that you don’t suffer a catastrophic disaster in a strategy, such as a complete reversal of the trend; second, knowing how to summarize and reflect after the stop loss, the stop loss at this moment is valuable, and you should be pleased with your decisive decision, rather than complaining, regretting, or doubting.
You must have a full understanding of yourself and the market. Is it because the trading system has insufficient loopholes, or is it because your judgment of the market is not rational and clear enough? If there are no accidents and you follow the reasonable arrangements of the system, then it is right to stop loss.
⚠️03 The formation of trading mentality is a long process
The shaping of trading mentality is a painful process. It is something that traders must spend their time and effort to do. Trading is not just about entering and exiting, long and short. It involves a lot of structural thinking skills. Simply talking about stop loss may be a big topic. Whether to stop loss, how to stop loss, and how to adjust the mentality and trading ideas after stop loss are all issues that test the level of traders.
(1) No stop loss
Trading without stop loss and without considering risk points at all is not only irresponsible to yourself, but also a great disregard of market risks. If you are still in this state, it is recommended that you should carefully think about this issue and adjust your trading habits and patterns as soon as possible.
(2) Set a small stop loss
When setting a stop loss, many people may think that they can only accept a small stop loss, so they must be cautious in choosing the product.
(3) Set a large stop loss
Many friends may have felt the big stop loss in this year's bull market. With the upward movement of the price center of gravity across the year, the intraday fluctuation of BTC is very violent under the background of abundant liquidity. Therefore, the small stop loss may not be able to adapt to the space of structural changes in specific varieties. At this time, you can only appropriately enlarge the stop loss according to the trend situation in the appropriate trading cycle. The big stop loss is not simply to avoid the stop loss and enlarge it. Instead, it arranges the stop loss action at the key position without changing the long-short structure. The price fluctuates violently, so the key turning point is significantly away from the structure of the unilateral band. For example, if the unilateral rise is 1,000 points and the callback is about 500 points, you can't say that the long structure is overturned at this time, but your stop loss is not set to hundreds of points, but dozens of points, which is definitely not enough.
After arranging a large stop loss on the one hand, you also need to remind yourself to reduce your position arrangement in a volatile environment. Otherwise, a heavy position plus a large stop loss will be a big test for your risk tolerance.
(4) Passive stop loss
The passive stop loss mentioned here is the situation where you carry a large floating loss. If your irrational behavior leads to a trend reversal, and then the loss is magnified again and again. At this time, you are close to the red line of the margin and face the situation of passive stop loss. We should try not to let ourselves experience this uncomfortable result. Some people may hold the belief of "must die", not giving up until the Yellow River, or the idea of breaking the jar. In fact, none of them is worthy of praise. Personally, I understand that any lucky carry of an order, return of capital, or even profit is not worth learning from or rejoicing. It is difficult for people to see their own mistakes, but it is easy to find the mistakes of others. Looking back, ask yourself, what is the meaning of this kind of transaction.
We have seen many traders who can downplay the major losses caused by themselves without seriously reflecting on them, but sneer at the reasonable range of stop-loss strategies referred to by the outside world. How ironic. In fact, the trading world itself is full of two extremes, some are happy and some are sad. The essence of trading is to gamble with your own heart.
When a strategy stops profit, you don’t have to exaggerate your joy and praise it, and when a strategy stops loss, you don’t have to deny it completely. At any time, you should ask yourself whether you agree with this idea and whether you can bear this risk.
The joys and sorrows of trading are ultimately experienced by the individual, so it is fundamental to execute with a responsible attitude towards oneself. You need to summarize yourself and dialectically analyze the opinions of the outside world.
Stop loss is not scary, but avoiding problems and misinterpreting transactions is scary!!!
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