Where did those who didn't set a stop loss die in which pullback?

Why must trades include a stop loss? Core logic and underlying reasons.

Stop loss is the "lifeline" in trading, essentially using preset, controllable small losses to avoid unbearable, devastating major losses. It is the risk cornerstone of all trading strategies.

1. Core reason: Countering the market's "unpredictability".

The essence of the market is chaos and uncertainty, and no analytical method can predict trends with 100% accuracy. The core function of stop loss is to pay for this "uncertainty."

• Small mistakes are not corrected, and big mistakes are hard to save: If you make a mistake in trend judgment and do not set a stop loss, a small floating loss may evolve into a 50%, 80%, or even a total account liquidation. To recover from a 50% loss, you need to make a subsequent profit of 100%, and the difficulty increases exponentially.

• Reject the "gambler's mentality": not setting a stop loss essentially means "betting that the market will turn around," placing hope in luck rather than in rules. A stop loss forces traders to accept the reality of "incorrect judgment," avoiding the deep entrapment caused by emotional decision-making.

2. The 3 Key Functions of Stop Loss

1. Locking in risk and preserving capital: This is the core function of stop loss. It fixes the maximum loss of a single trade at a preset ratio (such as 1%-5%), ensuring that a single mistake does not shake the foundation of the account and preserves opportunities for subsequent trades.

2. Enforce discipline and overcome human weaknesses: Human nature inherently contains "luck" and "greed." Stop loss automatically triggers an exit when the market reverses by setting rules in advance, avoiding the mentality of "wait a little longer" or "it will rebound," and watching losses expand.

3. Improve trading decision efficiency: After setting a stop loss, traders do not need to repeatedly struggle with "whether to exit" during market fluctuations; they can focus on determining whether the trend aligns with expectations, simplifying the decision-making process and reducing emotional interference.

3. Negative Case: The Fatal Consequences of Not Setting a Stop Loss

Assuming you trade with a principal of 100,000 yuan and do not set a stop loss for a single trade:

• If a transaction loses 50%, the account only has 50,000 yuan left.

• To earn back 100,000 yuan from 50,000 yuan, a subsequent profit of 100% is required, which is extremely difficult.

• If the loss reaches 90%, only 10,000 yuan will be left in the account, almost losing the possibility of a turnaround.

For traders with a stop loss, even if they experience 5 consecutive stop losses (each losing 2%), the total loss is only about 9.6%, and their account still has over 90,000 yuan, maintaining profitability.

In summary, a stop loss is not "admitting failure," but rather the most fundamental risk control tool in trading. It cannot prevent you from incurring losses, but it allows you to stay in the market after countless small losses, waiting for the real profit opportunity. Trading without a stop loss is essentially "betting on being right forever," and the market will eventually prove that this is a fatal illusion.