Trading experts have all endured the trials and tribulations of the market, having experienced numerous losses before gradually understanding the essence of trading and seeing through the truth of it. I have some friends around me who consistently make profits in trading; let's call them trading experts. When we discuss trading together, we always talk about the issue of stop losses. Regarding stop losses, our understanding is quite unified, and I am sharing it with you here.

1. Losses are an inevitable cost of trial and error in trading.

Every time we trade, we make judgments about the possibilities of future market conditions based on our technical criteria. We do not predict the future in trading; instead, we trade on these possibilities. Since it's about possibilities, there will inevitably be right and wrong decisions. Therefore, every time we open a position, it is a trial, and if we are right, we hold the order to reap profits; if we are wrong, we stop the loss in time to control the amount of loss.

The chart shows a 1-hour gold candlestick chart, and we use the breakdown of the M-top as our trading criterion.

Advertisement

Both the left and right trends meet this standard. After the M-breakdown on the left, the market continued to fall, and the order was profitable, which was a successful breakdown. After the M-top breakdown on the right, the market simply fluctuated downward and then reversed upward, and the order was stopped out.

Two attempts, one successful and one failed; this failed M-top trade is the cost of trial and error.

Because we always use the exact same M-top breakdown as our trading standard, combined with fixed entry and exit rules, we form a trading system. Each M-breakdown for us is an opportunity for trial and error, and as long as the profit and loss ratio is set correctly, our trading will be profitable.

2. Losses are a great test of a trader's mentality. The ability to correctly face and handle losses is the dividing line for trading success.

Many traders are overwhelmed when it comes to stop losses because stopping a loss means losing, which means admitting one's mistakes. From a human nature perspective, admitting one's mistakes and stopping the loss in time is a very painful thing. So sometimes, even when there is a clear stop-loss position, when it really comes to that point, there is still a tendency to delay execution, hoping against hope that the market might turn around, even if it means losing a little less. As a result, a small loss can turn into a big loss.

Therefore, traders can be divided into the following two types:The first type: In the face of losses, they panic and lose all trading rules, starting to gamble on the market and entering a severe loss phase.

The second type: In the face of losses, they remain calm, can decisively stop losses at the right points, and adhere to their trading rules. After a period of decline, they can turn losses into profits.

Good times are easy for anyone, but bad times truly test human nature, as we often say, adversity reveals true friendship. When we face losses, whether we can correctly handle the predicament of losses is the watershed of our trading success, and it is also the most important trading ability I believe.

The financial market is a zero-sum game; every profit you make comes from someone else's loss. Trading experts can make profits because most of the time, they are detached observers of the market's ups and downs, and they have a very thorough understanding of human nature. They understand that the issue of stopping losses causes most traders to lose their heads, which is also an excellent opportunity for profit.

Only by going against the grain, enduring what others cannot endure, and doing what others are reluctant to do, can we seize opportunities and achieve profits.