In the final analysis, speculative trading is a probability game. Since winning depends on probability, then failed transactions cannot be avoided. What is a failed transaction? Of course, it is a trade that is stopped out. Stop loss is a very important link in trading, and it must be executed after an unexpected failure of a trading strategy. So how to stop loss reasonably?
The real definition of the so-called stop loss is that the set stop loss price should not be broken down casually. The stop loss area will be protected by the market trend, which is an excellent defensive point. When the market price is close to reaching the stop loss area, then the market will have a high probability that it will reverse. When the market price breaks through the stop loss area, the market will inevitably trigger a large number of stop loss orders. In the risk of adverse trends, this is a taboo in trading.
Traders who do not use stop-loss tools will end up with a high probability of dying. Of course, there are exceptions, but the exception is a one-in-ten-million event, so don’t think that if a pie falls from the sky, it will hit you on the head On such a beautiful thing. We are all ordinary people, just ignore exceptions. Many times, our orders are stopped, but the price returns to the original position, making traders regret that they should not stop the loss. But if the next time you really don't stop the loss, you will encounter a unilateral market that does not turn back, and your death will be extremely ugly. Don't say that you haven't encountered it, as long as you are a speculator, such situations will definitely occur, and, I am sure, more than once.
Several common methods of stop loss
01. Technical stop loss
It combines stop loss setting with technical analysis, and sets stop loss orders at key technical positions after filtering random market fluctuations, so as to avoid further expansion of losses. This method requires investors to have strong technical analysis ability and self-control ability. The technical stop loss method has higher requirements for futures investors than the former one, and it is difficult to find a fixed mode. For example, moving average stop loss, channel line stop loss, trend line stop loss, RSI stop loss, Bollinger band stop loss and so on. This stop loss method is closely related to the investor's trading system, and its advantage is that it is simple and practical. The disadvantage is that it is too mechanized, and it is recommended for investors who are new to the futures market to use it.
02. Time stop loss
Before trading, set the holding time for the purchased product, such as 1 day to 1 week. If the holding time has reached the set period after buying, but the price does not have the expected trend, and it has not reached the set stop loss position At this time, don't change the "time period" of holding positions, and leave the market immediately, so as not to turn "short-term speculation" into "long-term investment", and eventually be locked up for a long time. Regarding the time stop loss, I recommend a book called "Wall Street Ghost", also known as "Ghost's Gift". The first principle is: if you are wrong, run away, don't wait to be verified by the market before you stop the loss, so as to avoid large losses. This is similar to Mao Zedong Thought. "If you can't fight, run away, if you can't fight, concentrate your superior forces to defeat them one by one."
03. Fund management stop loss
Money management has two purposes: survival and success. The first is survival, the second is trying to maintain a steady payoff, and the last is getting huge buffs. Beginners generally get these priorities reversed. They go straight for the big gain, never thinking about how to survive in the long run. Putting survival first allows you to focus on money management. Serious traders usually focus on minimizing losses and building capital. It is recommended that a single loss should not exceed 2% in any case, and allow yourself a maximum of 10 consecutive losses, so the maximum drawdown of our account is 20%, which can ensure that investors have a good attitude.
The most common mistake of stop loss
01. Failure to set a stop loss before entering the market
To set the stop loss price, you must confirm the stop loss price when you enter the market, instead of looking for the stop loss price when the market is not favorable to you after entering the market, because before you enter the market, you must confirm the stop loss price. When looking at the market, it is the most objective; when setting the stop loss price before entering the market, it must be able to confirm repeatedly that the stop loss price has substantial meaning, especially in short-term operation, the design of stop loss must be considered It can be set by many factors.
02. Constantly change the stop loss
When the originally set stop loss price reaches the price, it should be implemented. After entering the market, it is very unwise to constantly change the stop loss. In the case of funds, in many cases, it may not be strict You can escape by executing a stop loss, but if you develop such a bad habit, one serious injury is enough to erode all your hard-earned profits; and the more important loss is that when you keep changing the stop loss position, What you lose is the objective mood and opportunity to re-enter.
03. Stop loss due to emotion or warehouse pressure
If the stop loss price is not well designed, it is easy to encounter stop loss due to warehouse pressure or fear. This means that at the beginning of entering the market, you have no enough chances of winning. If you have to execute the stop loss, then such a transaction is basically the same as gambling, and the emotion of fear oppresses yourself to execute the stop loss, which is usually the wrong stop loss price.
04. Design stop loss based on loss
This type of stop loss is the concept of stop loss that most people make mistakes. The root of the error comes from not being able to jump out of the shackles of the trading model; when designing the stop loss price, first frame yourself because of the design of the trading model, for example: I set a profit of 60 points, so the stop loss can only be 30 points, and for example: my stop loss setting can only be 2% of the principal, so I can only set a stop loss of how many points;
For another example, some people will set a stop loss of 30 or 50 points when they enter the market, but they don't monitor in detail whether the stop loss price of 30.50 points is the stop loss price of the market. Loss zone, it is absolutely wrong to design stop loss with this kind of thinking, because the market is a chaotic body, and your own model is only a small part of it. Only the stop loss of the market is the correct stop loss, not the stop loss. Your stop loss is the correct stop loss.
The above are the current mainstream stop loss methods, as well as the mistakes that investors are prone to make. I hope it will be helpful to everyone, and I wish you all a smooth transaction.
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