For stock investors, the term 'stop loss' sounds very uncomfortable and is not very popular. If you also strongly dislike this term, then your investment behavior has already planted significant hidden dangers, like a ticking time bomb that will eventually destroy your investment career.
In fact, stop loss is an important part of a series of trading procedures for a professional investor. It has no emotional color and is just a part of the booking plan. It is as natural as playing a video game, executing tasks according to the designed program, rushing through levels and seizing obstacles, and breaking the arm of a brave warrior, which is extremely natural.
Due to the inherent weakness of human nature, it constantly and unconsciously affects our operations. One big loss is enough to lose the profits of the previous 99 times. Therefore, strictly adhering to stop loss discipline has become the only rule to ensure investors' survival in the risk market. Stop loss is a fundamental skill in securities investment. There is a useful and simple trading rule in the American investment community called the Alligator Principle.
All successful securities investors in the world are repeatedly training their understanding of this principle before entering the market.
This stems from the way crocodiles devour: the more their prey tries to struggle, the more they reap. Assuming a crocodile bites your foot; It bites your feet and waits for you to struggle. If you try to break free from your feet with your arms, its mouth will bite both your feet and arms at the same time. The more you struggle, the deeper you sink in.
So, in case the crocodile bites your foot, remember: your only chance of survival is to sacrifice one foot! If expressed in the language of the market, this principle is: when you know you have made a mistake, immediately exit the market! Do not make excuses, expectations, excuses or take any other actions, leave quickly! In fact, whether it is stock market, foreign exchange market, or option trading, their trading techniques are similar in this regard. To survive in the securities market, sometimes patience and sometimes confidence are needed, but patience and confidence do not mean luck. Investors who do not know how to stop losses are losing to the mentality of luck?
What I want to emphasize is that stop loss is scientific, and understanding scientific stop loss is the fundamental guarantee for winning in the stock market. The purpose of scientific stop loss can be summarized as: avoiding risks, preserving capital, and seeking survival.
In fact, the nature of stop loss is not a direct investment loss, but rather an insurance premium paid to the market to protect the safety of the principal. It is a cost that stock market investment must bear. It's like buying a private car, you first have to go through the insurance procedures, and you have to pay the insurance premium in advance every year. If you pay a premium of 5000 yuan a year and your car is safe and sound, will you regret it? Do you think you have suffered losses?
Controlling risks is the most important guarantee for achieving goals. A person who has just learned how to drive, knowing how to press the brake is more reassuring than just knowing how to press the accelerator, in order to learn to hit the road faster; A person who has just learned skiing and knows how to control their sliding speed is safer and has hope of becoming an expert compared to simply letting them accelerate. Isn't it the same for stock trading to say, 'Before a successful start, one dies first, making a hero shed tears!'? How many investors have fallen into dire straits due to poor stop loss strategies!
The stock market is a risk market, and "one win, two draws, and seven losses" is a normal phenomenon in both ancient and modern stock markets, both domestically and internationally, regardless of whether it is a bear market or a bull market. The two demons of greed and fear entangle every stock investor, and how to control risk will become the first issue for every professional investor. As the saying goes, 'safety comes first in a century long plan.' To become a stock market winner, one cannot rely on short-term bull market trends or sudden drops in luck. One must have the skills and ability to sustain profits, as well as the 'bulletproof vest' to avoid risks. In one sentence, professionalize yourself, otherwise you will be eliminated by the stock market.
As a professional investor, every operation must be planned, and three price levels must be determined before each purchase, namely: buy price, take profit price, and stop loss price. If this job is not done well, any operation is strictly prohibited!
In the early years of surfing the stock market, I had the glory of constantly making huge profits due to accurate stock selection, but at the same time, it was accompanied by several catastrophic disasters caused by insufficient understanding of risks and poor stop loss. I constantly wandered between heaven and hell, experiencing great joys and sorrows, ups and downs, and the weaknesses of human nature were maximally reflected in stock trading. After learning from the experience, I finally realized the simplest and most well-known truth in the stock market: learning and being good at stop loss is the basic prerequisite for survival and development in the stock market!
