This is actually a very heavy topic.
Isn’t it said that stop loss can prevent greater losses?
Why do some people still have liquidation? There are several reasons.
Next, I will try to explain my understanding of stop loss from various angles!
We can see that the most common way we trade is to set a stop loss after entering the market, set a certain position, and control the loss of a single transaction, thinking that this will prevent ourselves from suffering greater losses.
In my opinion, setting a stop loss will not cause a person to be liquidated instantly, so the final reason for the liquidation is not the stop loss, because if you trade with a heavy position, you will be liquidated sooner or later. This is determined by human nature, because you cannot bear the psychological pressure brought by a heavy position. It will not work if you stop loss, and it will not work if you don't stop loss.
It can be said that if you start trading with a heavy position, it will not be of much help whether you stop loss or not, because this approach is doomed to end in a margin call!
What if you are trading with a light position? There is no substantial difference between stop loss and no stop loss. Because you are trading with a light position, you do not need to stop loss constantly. As light positions have a greater room for error, you can wait until the market really reverses before considering closing the position, rather than constantly stopping loss during the process!
Therefore, stop loss or not is not the most fundamental reason for a margin call. The fundamental reason for a margin call is heavy positions, continuous heavy positions, and continuous trading against the trend! If you don’t believe it, you can pull out your account or look at those accounts that have been liquidated to see what exactly caused the account to be liquidated. In fact, it has nothing to do with stop loss at all, because whether a margin call occurs does not depend on whether you stop loss or not, but on your position and your emotions.
Can you be self-disciplined and have enough self-control!
Next, let’s return to the topic of stop loss.
Why do I always emphasize light position trading?
Gradually increase your position with profit, and wait until the market goes completely against your trading direction before choosing to stop loss. This is a truth that most people don’t understand! People can be stupid, but they can’t be brainless, and they can’t be too smart. Those who lose the most in trading should be those who think they are very smart, because these people always think they can beat the market!
Stop loss is a big topic. There is no absolute conclusion on how to stop loss. It depends on different people and their own trading rules, so it requires constant debugging and adjustment!
You can’t stop loss blindly, nor can you not use stop loss. It all depends on your rules. When a novice enters the market, the market is full of risk control, strict stop loss and other voices, which will mislead inexperienced novices and make them think that everything will be fine if they use stop loss. In fact, ignorance and blindness are the biggest risks in this market! Frequent trading and frequent stop loss are the taboos of trading. Many people think that I often use dozens of points to stop loss, and then the market continues to move in my original direction. If I don’t use stop loss, sometimes I will lose a lot.
What should we do about this problem?
This is a question that most traders struggle with!
Just imagine, who can limit the market space to a small range in long-term transactions? I think no one can do it, so the stop loss should be an interval, a flexible range, not a point!
Because it takes time for a trend to turn around, and the continuation of a trend has a certain spatial and temporal nature, and the same is true for a reversal. Therefore, the truly reasonable way to stop loss should be to wait until the market turns and then actively stop loss. Because when the trend is still there, if the market enters a period of volatility, you will only stop loss without reason, which will have an unreasonable impact on your emotions and trading rhythm, which is very unfavorable!
As for what to do specifically, it depends on your own rules and framework and has nothing to do with the market conditions!
Having said so much, I believe everyone has some basic understanding of stop loss and margin call. First of all, margin call is definitely not due to stop loss problems, but frequent stop losses will put your trading in a vicious circle. In the end, margin call is just the chain reaction brought about by continuous stop losses!
First of all, don’t hold a heavy position and don’t stop loss blindly, so that you won’t lose control. This is why I have always emphasized light positions. Light positions have more room for error, and you can wait until the trend turns before considering stop loss. In this way, you can see the market clearly while also seeing your own trading status!
In addition, the mainstream trading concepts in the market, such as strict stop loss and risk control, will only magnify your awareness of risk. It is good to have awareness, but when this awareness makes you start to feel emotional about the slightest fluctuations in the market, this awareness goes to another extreme and is of no benefit to trading!
As long as you have the correct trend and the timing is right, you only need to start with a light position and keep testing, gradually build up positions within a range, open positions, increase positions with profits, and slowly combine them, while waiting for the market. When the market turns, dare to close your position, because the condition for stop loss should be that your entry conditions no longer exist, not that your so-called high point of the pattern has been broken!
However, after entering the market, you can set a relatively large stop loss to prevent sudden black swan events in the market, because a market turnaround will take time and is not sudden!
If you understand this basic nature of fluctuations, you will no longer worry about whether the stop loss is 50 points or 80 points, because the stop loss may seem to be points to you, but many times it may be related to time and trend!
