How to Control Losses?
Losses are an inseparable companion for a trader; they are unavoidable and cannot be shaken off. Building a trading system that suits oneself is key to 'reasonably' reducing losses and achieving long-term stable profits. Before establishing one's own trading system, it is essential to clarify one's psychological tolerance for losses. The psychological fluctuations caused by market volatility and the amount of loss in the account vary among traders. Every trader must recognize their psychological tolerance for losses, as this directly influences their execution strength.
A trader's psychological tolerance for losses must be taken into account, but this subjectivity should not be overly emphasized; the objective regularities of the market must also be considered. Understanding one's psychological tolerance for losses is meant to determine the length of one's trading cycle. Different trading models allow for different amplitudes of market fluctuations, meaning that the allowable loss limits vary. We need to consider keeping losses within the smallest possible range, but this 'smallest possible range' must also be a 'reasonable' smallest range. The so-called 'reasonable' smallest range refers to an amplitude that is as aligned as possible with the 'objective market fluctuation laws'. An overly small, subjective stop-loss limit can fragment a trading period that could have allowed profits to run, significantly reducing profitability; it may even transform a potentially profitable trade into a loss. However, an excessively large stop-loss can also greatly reduce trading efficiency and may turn a potentially profitable trade into a loss. This represents a wisdom of 'giving up' and 'gaining', and it is a dialectical point of thinking, as well as a focus of the trading system. It relates to the rationality of trading results, the execution strength of the user, and more.
How to grasp the regularities of the objective market and set a reasonable stop-loss limit has no shortcuts; it requires reviewing past trades after determining the instruments you wish to trade. Through reviewing past trades and compiling probability statistics, one can identify the fluctuation patterns of the traded instrument, start creating a trading model for that instrument, and gradually build up their own trading system.
