Today we want to talk about one of the most difficult yet important topics in the crypto world: stop-loss. Or to put it more bluntly: how to gracefully 'admit a mistake'. I have seen too many people, including myself at one point, consider 'stop-loss' as a failure, a shame, a stubborn 'how could I be wrong?'.
In 2019, I bought a very popular 'cross-chain' project at the time. The purchase price was $10, and I set my stop-loss at $8. When it dropped to $8.5, I thought, 'I'll wait a bit longer, it will bounce back.' When it reached $8, I silently changed my stop-loss to $7, thinking, 'It has already dropped so much, how much lower can it go?' When it fell to $5, I started to 'recharge my faith', researching the project's fundamentals and looking for various positive news to comfort myself. When it dropped to $2, I became numb, deleted the software, and acted as if it didn't exist.
In this trade, I lost 80%. More importantly, I lost three months of time cost and mindset. During those three months, I watched it decline, did not dare to do anything, and missed other opportunities. If I had decisively stopped loss at $8, I might have made it back elsewhere.
Today, I will share with you my 'stop-loss insights' gained from an 80% loss.
One, why do we so 'hate' stop-loss?
Reason One: Equating 'stop-loss' with 'failure'
In our education, 'perseverance' is a virtue, and 'giving up' is a shame. But in investing, 'persevering in mistakes' is a disaster, while 'giving up on mistakes' is wisdom. We need to redefine: stop-loss is not admitting you have failed as a person, but acknowledging that 'this trade' may be wrong.
Reason Two: The 'sunk cost' mentality at work
'I have already lost 20%, stopping loss now is too much loss, let's wait for a rebound.' This is the most toxic thought. You lost 20% is a fact, whether you stop loss or not, that 20% is already lost. Stop-loss is to prevent losing 40%, 60%, 80%. Using 'already incurred losses' to bind 'future decisions' is typical irrationality.
Reason Three: The fear of 'selling too early' is greater than 'being deeply stuck'
Many people would rather be deeply stuck than see the currency price rebound after stopping loss. Because when stuck, you can comfort yourself with 'not selling means not losing', but a rebound after stopping loss will bring great regret and self-attack of 'I'm really a fool'. But 'selling too early' just means earning less, while 'being deeply stuck' may be a road of no return.
Two, my 'pain-free stop-loss' system
After countless painful cuts, I have summarized a system that allows me to stop loss 'without any inner turmoil':
First layer: Before buying, think about the 'death method'
Before clicking the 'buy' button, I must clarify three things:
Where is my stop-loss point? (e.g., -8%)
Why set it here? (e.g., is it the previous low point, trend line support)
What to do after triggering? (e.g., stop loss half, observe before deciding on the other half)
Buying without a stop-loss plan is just playing rogue.
Second layer: Stop-loss point is 'law', not 'reference'
My stop-loss order must be a conditional order, set in advance, and never manually intervene. This is like knowing there is a cliff ahead, setting up a guardrail beside the road, rather than waiting for the car to reach the cliff edge before hitting the brakes—by that time you may already be panicked.
Third layer: Gradual stop-loss, giving a 'suspended sentence' opportunity
For medium to long-term positions, I may not stop loss all at once, but gradually:
Level One Alert (-5%): Reduce position by 30%, recover most of the principal
Level Two Alert (-8%): Reduce position by another 30%, only leave profits inside
Level Three Alert (-12%): Liquidate completely, admit wrong
This not only gives room for market fluctuations but also controls the maximum loss.
Three, stop-loss strategies for three classic situations
Situation One: Stop-loss in trend trading
Strategy: Follow trend lines or moving averages (e.g., 20-day line)
Stop-loss point: Closing price breaks the trend line/moving average
Key point: The core of trend trading is 'let profits run, cut losses short'. Therefore, stop-loss should be relatively loose, allowing for trend fluctuations, but once the trend is confirmed to change, exit decisively.
Situation Two: Stop-loss in swing trading
Strategy: Buy at support levels, sell at resistance levels
Stop-loss point: Break below the support level (preferably with a tolerance of about 3%, to prevent false breakouts)
Key point: Swing trading must be precise, and stop-loss must be strict. Because your profit margin is limited, you must control your losses.
Situation Three: 'Stop-loss' in value investing
Value investing generally does not stop loss, but there are two situations where I will 'temporarily leave the market':
Deteriorating fundamentals: Core team leaving the project, technical route being disproven, regulatory crackdowns, etc.
Severely overvalued: Although it's still a good project, the price has already overdrawn the growth of the next five years.
This is not the traditional definition of 'stop-loss', but rather 'logical stop-loss'.
Four, three things to do after a stop-loss
Stop-loss is not the end; it is the next beginning. After stopping loss:
Write a 'eulogy': Record why you bought, why you stopped loss, how you felt, and what you learned. This is the experience you bought with real money, and it must be archived.
Cash position observation: Don't immediately open a new position to 'make up for losses'. When your mindset is damaged, operations can easily become distorted. At least take a day off, or even a week.
Review system: If you have consecutive stop losses three times, don't just blame the market; review your entire system: Are the buying conditions too loose? Is the stop-loss point unreasonable? Has the market environment changed?
Five, build your 'stop-loss' mentality
If you still can't take action, think about these few sentences:
Stop-loss is the 'entry fee' for trading. If you want to play in this market, you must pay. Those who never stop loss have long since exited.
Stop-loss preserves your 'options'. If you lose 10%, you need an 11% gain to break even. If you lose 50%, you need a 100% gain. If you lose 90%, you need a 900% gain. If you keep the green mountains, you won't worry about not having firewood.
Excellent traders are all 'masters of stop-loss'. They don't earn on every trade, but they earn more than they lose. Stop-loss is about controlling that 'loss' part.
Six, a simple stop-loss formula
Remember this formula, applicable to most people:
Maximum single loss ≤ 2% of total capital
Assuming your total capital is 100,000, the maximum single loss is 2,000. If your stop-loss margin is set at 10%, then you can invest a maximum of 20,000 in this trade.
This formula forces you: either bet small or set tight stop-loss. This is a combination of position management and stop-loss, which is the core of risk control.
When I stop loss now, I really feel no inner turmoil, and even feel a bit relaxed. Because I know:
I have preserved most of my principal
I have gained freedom to look for the next opportunity
I executed the plan; I am a disciplined trader
In investing, the greatest courage is not to 'hold on until the end', but to 'admit mistakes and start over'. Stop-loss is not an end; it is protection, a restart, and a necessary path to stable profits.
When you no longer see stop-loss as a shame, but as an ordinary part of trading, you have evolved from a 'gambler' to a 'trader'.
If you are also often hesitant about 'stop-loss', I hope this article can give you some courage and specific methods. Follow me@币圈罗盘 , next we will talk about (the wisdom of taking profits: how to avoid the regret of 'selling too early'?)
Remember, in the cryptocurrency circle, only those who can stop loss can survive, and those who survive can wait for the bull market.
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