Stop losses
Beginner · 1 min
Everyone agrees you should cut a loss. Almost nobody decides in advance where. This topic is about making that decision while you are still calm, which is the only time it can be made well.
A trade that goes against you asks you the same question every day: hold on, or get out? Answering it while your money is disappearing is the worst possible time. So you answer it beforehand, once, and write the answer down.
- stop loss
- A price chosen before you buy, at which you will sell and take the loss. It exists to cap what a single wrong decision can cost you, not to be right.
The point is not that the price will never come back. Sometimes it will, and you will have sold at the bottom, and it will feel terrible. The point is that you do not know beforehand which losses come back and which keep going, and one that keeps going with no exit can take a year of gains with it.
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Works with
- Support and resistance — Prices where a share has repeatedly stopped falling, or stopped rising.
- How buying and selling works in India — Your order passes through two accounts and settles the next working day.
- Trading with a trend — Where to get in, where to get out, and what the method cannot promise.
- Waiting for confirmation — A price that pokes above a key point and falls straight back has told you the opposite of what it looked like.
- The rules around the key point — What you buy, how much, and when you add are separate decisions the key point does not make for you.
- Head and shoulders bottom — Three lows, the middle one deepest, and a line across the bounces between them that the price has to close above.
- Buying after it goes quiet — Three rules people use to act on ground volume, and why none of them tells you the bottom.
- Volume in a pullback — When a rising share dips, how fast its volume shrinks is read as a sign of how the dip will end.
- Trading a hammer — Enter on the confirming close, put the stop under the hammer's low, and size the trade so that stop costs what you planned.
- When a tip is dressed up as analysis — A pitch that shows you arithmetic and charts can still be a sales pitch, and the arithmetic proves nothing.