The Importance of Stop Loss

One of the first thing that my master told the whole class during the lesson of tehcnical analysis is that Stop Loss (SL) is one of the most difficult thing that we do in trading. It has been something that continue to ring in my mind until now, which is close to 8 years since I was first taught the skill.

It was 1998 that I met my master in technical analysis, I still cannot believe that it has been so long and yet I still cannot forse myself to stop loss on a trade gone bad. It is the most important thing that to be done in order to safe guard my capital, yet every time when my trade meets stop loss level I ponder on whether to have it activated.

I set a very stringent SL level. As one of the book have taught me, set it at a place where you think it won't go. So if it goes there, it means that something is wrong. Indeed the trick is very effective, especially I am setting my SL at energy level. There is just one problem. If the SL is breach, it always speed up its movement, going more than just one bid down, it does a free fall.

Every time I meet SL, I find that there is always a voice in my mind that tells me," it will come back up." But the sad truth is that most of the time, it won't. The SL level is set when I read the charts during end of day. Although the day's movement has some effect on my judgement, but its influence is much lesser than trading time, my reading during this period would be more objective. Unlike during trade when my emotion is governed by every single movement of the stocks I have bought. Activating SL is such a difficult thing to do.

Why do I write this page then? It will give me a constant reminder that I need to ensure Stop Loss is set and executed when necessary. This is the most important part of my system and need to respect. As my master has taught," you are playing only your system and not the market. Only doing so you will eventually win."