Ausforex: How to Really Understand the Nature of Stop Loss?

The essence of stop loss: What is a stop loss in futures and foreign exchange trading? This question seems simple, but many people - even those who have been engaged in trading for a long time and have received systematic training - do not really understand it. In essence, a trading stop loss is a "no" judgment on the market. If the different states of the market can be distinguished by "A" and "B", then when the "yes" judgment determines that the market state is "A", the "no" judgment means that the negative state "A" and the state "B" is determined. InAUSFOREXWhen trading on a platform, it is crucial to understand this logic correctly in order to execute a stop loss.

From the logical level of trading behavior, the correct stop-loss operation can also be explained in accordance with its essence, while random stop-loss trading behavior is logically inconsistent.

First, stop losses should be made unless continuing to hold a position in a trade direction will only increase losses and will not lead to profits. In other words, stop losses are executed when the direction judgment is wrong, and homeopathic positions should not be easily stopped. Such a stop loss is in line with the correct logic of trading behavior, other than that, nothing else makes sense logically.

For example: "psychological stop loss" - stop loss because of psychological bad feeling! This is precisely the important source of failure in futures trading, and it is also the enemy of profit, and it is not worth refuting them all. If you often rely on psychological stop loss, then you may not be suitable for participating in futures trading.

Another example: "capital safety stop loss" - this statement lacks basis. Engaging in risk trading such as futures and securities necessarily entails certain risks. There is no absolute "capital safety" in this field, only relative "capital safety". Capital safety is based on the allowable loss limit - that is, the risk limit - which should and must be set in advance through the control of the opening volume. If you often touch "capital safety stop loss" because of the large opening volume, it means that you have not yet mastered the basic skill of risk control and need to make up for this lesson.

It is inevitable that even the right stop loss will result in capital losses. But the right stop loss can make people "take a small loss and make a big profit". Therefore, if the logic makes sense, you should be happy after executing the correct stop loss.

If you have not fallen into the misunderstanding of "psychological stop loss" or "capital safety stop loss", and understand that correct stop loss is a good thing, but always feel that there is a problem with your stop loss, then you need to review your market judgment system. Because stop loss is essentially a "no" judgment of market judgment, a certain stop loss method must be attached to the corresponding market judgment system. A market judgment system that cannot provide the correct stop loss method usually cannot give a correct market judgment. This can also be used to determine the authenticity of a market judgment system, determine whether a trading master is credible, and determine whether you really have mastered the market judgment technology.

Trend judgment and price judgment are two different things.

The entry and exit points should follow the principle of "buy low and sell high", and the judgment of "low" and "high" belongs to the task of the price determination module.

For trend judgment, it should be either one or the other, which helps to determine whether the current investment direction is correct or not. The point of variation in the trend is not necessarily the entry point identified in the price, but it must be the final exit point of the investment position in the opposite direction.

When the point of variation of a trend is inconsistent with the point of entry, is it equivalent to an intermediate state? Those who are knowledgeable can think deeply.

"Adjustment" is not a "trend".

The trend itself develops in a spiral (three-dimensional perspective) or a wave (two-dimensional perspective). There are only two types of trends: up and down; as for the adjustment, it is only a manifestation of the "tortuosity" in the development of the trend. Adjustment refers to the adjustment wave, which is part of an upward or downward trend, rather than an independent trend, to borrow from the theory of waves.

The purpose of this understanding of the problem is that adjustment is a very important operation opportunity in the trading process. Only by standing in the overall situation of the trend can we understand and grasp the operation opportunity in the adjustment from the strategic level. The view that adjustment is also a trend obviously deviates from the overall situation and can easily lead to the loss of opportunities. When trading on platforms such as ausforex, it is even more necessary to clarify the relationship between trend and adjustment to avoid misjudgment.