After continuous exploration in actual combat, I’ve gained a lot of thoughts on stop loss theory and skills. In response to the strong demands of most stockholders, I will now share my “Golden Five Stop Loss Rule” for your reference:
First, the space displacement stop loss method:
Initial stop loss method: Pre-set stop loss point before buying stock, for example, 3% or 5% below the purchase price (short-term, mid-line should not exceed 10% at most), once the stock price falls to break the stop loss point, generally refers to the closing price, leave immediately.
Guaranteed stop loss method: Once the stock price rises rapidly after purchase, the initial stop loss price should be adjusted immediately, and the stop loss price should be moved up to the guaranteed price (buy price + two-way transaction fee). This method is very suitable for T+0 operation, as well as T+1.
Dynamic Stop Loss Method: Once the stock price continues moving upward out of the capital preservation stop price, then move upward the position of the stop loss price and observe the volume and price relationship of the disk. If the volume-price relationship is normal, stick to hold, setting the stop loss at a certain percentage downward. If the price-price relationship deviates, leave.
Trend Stop Loss Method: Take the effective trend line or moving average line in an actual combat as the reference coordinate and observe the stock price operation. Once the stock price effectively falls below the trend line or the average line, leave immediately.
Second, the time period stop loss method: Before we buy the stock, we must set the holding time for the stock, such as 1 day, 3 days, one week, two weeks, etc., if the time after the purchase has arrived the limit, but the expected trend didn’t happen to stock price, and the set stop loss was not reached, do not change the “time period” of the shareholding at this time, and immediately leave the field, so as not to turn “short-term speculation” into " Long-term investment, and eventually become " long-term imprisonment."
Third, the mood fluctuation stop loss method: If you buy the stock and it feels bad, difficult to sleep and eat, which means that you think that the reason for buying is insufficient or lack of confidence, and this will affect the operation in the future, so decisively sell out.
Fourth, emergencies stop loss method: If a major event occurs in the stock purchased, and the reason for the purchase disappears, act to stop loss to avoid further losses.
Fifth, judging the main stop loss method: The main fund and position change is the most reliable way to judge the main force in and out. If you can’t see it from the disk, you can use a third-party website, such as “Fortune Winner Forum”, check the website to know the URL. The above real-time capital flow and position details have become a must-have tool for retail investors.
The all above is what I have studied and formed the professionalized “Golden Five Stop Loss Rule” from a multi-faceted perspective in terms of time, space, emotions and emergencies. Of course, the above stop loss methods should be comprehensively applied, mastered and improved, and finally the risk can be controlled to a minimum.
To protect yourself, you need to use a combination of fists: how to protect yourself is the first major thing that should be learned in the field of investment. We should use the stop loss strategy as the final remedy, and then exercise our proactive strategy without worries. About the proactive strategy, a good job on our operational plan is indeed, imaging what might happen and acting on what might happen, but the market will still be interpreted in a way that you can’t imagine. So, we must constantly improve our ability to handle some unpredictable events.
From another perspective, the proactive strategy also includes our initiative not to act. If we have enough confidence in the market, that our plan needs to be modified, and want to continue testing the market, then we can take the initiative not to act. However, historical probability states this strategy is full of risks. The biggest risk is that it is impossible to maintain sufficient sobriety and reason in this process, so this strategy should be used with caution.
No one wants to lose money, but if the market and individual stocks change, the stop loss is undoubtedly the best choice to reduce losses.
The stop loss point must be set before you enter the market and stick to it with no fluke. If most people set the set loss point at a certain position, stay away from that to avoid being trapped.
Some people say that finance is a gamble, but I feel like a game. Just like playing chess, you never know which step your opponent will go, but you have to look at the chessboard and decide on your own, and your mentality must be stable with no greed or panic. Similar in life, don’t think about getting rich overnight, but focus on a long-term plan, and strive for stability.