The three major signals of liquidation. First, let's talk about under what circumstances liquidation is likely to occur? The answer is during consecutive profits. Some might question how liquidation can happen during consecutive profits? Isn't this nonsense? In a state of consecutive profits, traders develop loss aversion, meaning they are unwilling to face losses. At this time, consecutive profits reinforce this psychology, making it hard for them to accept the reality of impending losses. When losses occur, they want to move the stop-loss point or conduct heavy trading, even adopting a Martingale strategy in an attempt to recover losses. Therefore, liquidation often stems from heavy trading or not using stop-losses. The trigger that leads traders not to use stop-losses is precisely the inability to accept losses after consecutive profits, which is the first signal of liquidation — loss aversion.
When traders experience consecutive losses, another psychological phenomenon occurs, which is the amplification of 'risk exposure'. In the case of consecutive losses, the impulse to take risks is triggered. They might think: since I've already lost, I might as well go for a big bet; since I've already lost, let's change the entire trading strategy; since I've lost anyway, it doesn't hurt to occasionally violate the rules. It is important to note that if one does not violate the rules and normally uses stop-losses, it is very hard to get liquidated. Because simply using stop-losses, even if losing, does not necessarily lead to liquidation in a short period unless one experiences consecutive losses for 30 years. However, in reality, traders often get liquidated after a few losses because they change their trading plan.
Thus, it can be seen that liquidation is the result, and the process is that traders find it difficult to bear consecutive losses after a series of profits. Once losses appear after profits, they attempt to change their risk exposure and become more reckless. From a psychological perspective, this is falling into risk-seeking behavior, wanting to take more risks during losses and not wanting to lose during profits. These two psychological factors work together, ultimately leading to liquidation.
Everyone must understand: treat yourself well, accept yourself, and reconcile with yourself. Human nature cannot withstand tests; after consecutive profits, one is likely to face consecutive losses. Every trading system has its times of profit and loss. During consecutive losses, can one choose to pause trading? If one continues trading, it means gambling with the stop-loss money to see if one can profit consecutively again. When in profit, one should understand the importance of securing gains and respect the market. If one always thinks they can keep winning, they will inevitably face consecutive losses.
We need to be psychologically prepared and face ourselves. Since we know that we amplify risk exposure during consecutive losses, we should try to avoid consecutive losses. If one has been experiencing consecutive losses for a period, it might be time to stop or pause trading. For example, if one has been consistently profitable and this time intended to make another profit with a new order but fails to reach the take-profit point and instead incurs a floating loss, one should realize that it is best to refrain from trading today.
Those who have experienced consecutive losses should clearly understand the characteristics of consecutive losses and avoid triggering stop-losses easily. Stop-loss is the last line of defense, and triggering it does not mean a trading mistake. The correctness of a trade is often judged in real-time. If a trade does not prove to be correct within the set time frame, one can consider using a stop-loss. Stop-loss can also bring benefits, such as preserving capital or making a small profit. The reasoning is simple: why should one watch losses expand? This is the reason for liquidation.
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