Limit your losses with the stop loss
A stop loss is a order you give to your broker to, as its name suggests, “stop loss” The main rule of trading is always keep risk under control. For this, you have to know how much are you willing to lose before entering the market.
The way to materialize this risk control is the stop loss, an order that is executed automatically when the price reaches the value assigned to limit the loss. Without a doubt, the Stop Loss is one of the most important tools in the stock market.
It is essential to understand that Trading and investing in the stock market is a risky business, which must be covered with good risk management, which entails an accurate placement of Stop Loss orders.
Trade without stop loss?
At Traders Business School we consider this a mistake, which largely concentrates the main psychological challenges that every novice trader can suffer. Not placing a stop loss responds to a question of ego: the trader thinks that his reading of the market has been correct, that the entry is well executed, and that despite the fact that the operation was going well at first, he turns around against you and you think that the market will soon turn around in your favor. Greed, fear, lack of rigor in the application of the trading plan are other sins that are committed by not placing a stop loss.
There is no perfect trading system, the reliability of your operations will not keep them at 100%. It is also not necessary to have that reliability to make money consistently in trading, with a reliability of between 70% and 80% is more than enough to become a profitable trader.
move the stop loss
This happens when you have placed a stop after entering, the price goes against you and when you see that it continues against you, you lengthen the stop, increasing your loss, or you add more contracts to average that operation and thus be able to make a profit, and until the market turns in your favor or in the end you close because you don’t give anymore.
This action is one of the stupidest things you can dofirstly because when a trade does not go in your favor, you close and wait for the next entry signal, and secondly because while you are stressing about moving the stop or adding more contracts, you are losing a great opportunity cost.