How to train yourself to put a stop-loss?

11 May 2023

How not to be afraid, not to be ashamed and not to get angry when placing a stop-loss.

Let me guess. At first you flew into the market with great hopes and plans, but then you lost a couple of deposits. I pulled myself together, reviewed a bunch of strategies on YouTube, each time being inspired, but again and again I smashed my forehead against this wall. Drain after drain. Feeling completely stupid and hopeless.

At the next stage, you read Schwager and Face. I learned that for profitable trading you do not need Grails, but it is enough to have a mathematical advantage on a series of transactions. That the loss needs to be cut off, and the profit should be increased.

Again enthusiasm, euphoria, studying catalogs with new Lamborghini... And again hitting the wall. Only now this wall is not liquidation. This wall is Stop Loss. You went through all the circles of hell, setting it up for your deposit, for your analysis, for your risk, for your mood... And every time the price reached it, you received a resounding, hot slap in the face. And the price reached him in almost every transaction, as if they were there specifically watching you and tweaking the quotes.

First, you increased the stops so that the price did not reach them. But having received a couple of slaps in the face, he began to reduce them, fearing losses. Now the feet began to break even more often. It was unbearable. Vicious circle.

You didn't give up. I learned about smart money and wrote my first clumsy trading system. The size of the stop is no longer taken from the ceiling, but is tied to the risk, the size of the deposit and the market situation. You were determined to stick to your system on a series of trades and not deviate from the path so that the math had a chance to shine. Slowly it started to work out. Profitable trades alternated with departures in the footsteps and, in general, you were in the black, BUT...

A fire burns in the soul after each departure. You can't even accept this allowable loss. You take it as a shame, as a personal insult. Maybe you don't even write down such trades in a trading journal so that you can quickly forget about them.

And this will be a decisive barrier to stable trade. Calm attitude to risk and loss. Here is the essence of the method that once helped me.

So, suppose you are already at this stage. You do not need to explain that the risk per trade is no more than 2% of the deposit. That the stop is tied on the chart to liquidity. That commissions and slippages in the market have not been canceled and they also need to be included in the amount of risk.

How to internally accept these losses. How to correctly limit them. How to fool your anxious brain?

I was helped by the experience of playing poker.

If you don't know, in some types of poker, in each distribution of cards, you pay a mandatory commission - Ante. This is a small amount that the dealer takes from each player, on each round of the game. And this payment is so natural that it is not perceived emotionally by the players. This is the usual condition of the game - you pay in order to receive cards. And this is so brilliant that if you shift this perception to trading, everything changes instantly.

You have nothing more to lose. Your Stop Loss is the entry fee for each trade. Emotionally, you have already invested this amount and parted with it. If the deal is profitable - you recaptured the entry fee plus earned. If it is unprofitable, you are just looking for a new deal, since you have not lost anything. You just paid to get in.

But that is not all. We further simplify and visualize this approach.

For example, you analyzed the chart, estimated the entry volume, calculated the stop according to all the rules and indicated the take profit. Let's say stop = 1% of your deposit, including commission. Let's say your deposit = $1000, which means that in monetary terms your stop is $10. That is, in this deal you pay $10 for entry and then you just wait. The deal either works or it doesn't.

But make such a trick

Leave only these $10 on the futures account, and transfer the rest to the main one. Set leverage x100. And enter the deal where you planned. What will happen now? And now, if you make a mistake, exactly after 1%, your trade will be closed by liquidation, as provided by your stop. Just no risk of slippage. On the "table" is only the money that you put on this deal. It either works or it doesn't. As provided by the system.

You cannot undo or move the stop at will. You have a one way ticket.

An additional plus is that with this approach, you have liquidity freed up for opening parallel transactions. Relatively speaking, your deposit is no longer money. This is a certain number of attempts to earn, equal to the number of stops that you can pay.

But do not forget that after each transaction your deposit will change and each subsequent stop must be calculated from the updated deposit amount.

Good luck in our hard work, samurai. And remember, we don't have a goal, we only have a path.

! When using the method with trading only the amount of the stop, but with increased leverage, be sure to check that you have isolated margin mode set and autodeposit is disabled!
! By adjusting the leverage, you can change the width of the stop, depending on the market situation, while remaining within your risk management to the size of the deposit. For example, by setting the leverage x80, you will be liquidated only after 1.25% of the price movement.