The Myth of Stop-Loss: Why It Can Destroy Your Capital

In trading, it is often repeated: "Always set a stop-loss."

This tool is presented as an essential safety belt, intended to protect the portfolio from excessive losses.

But the reality is more nuanced: if misused, the stop-loss can become a real trap. Let’s see why.

1. The stop hunt: the weapon of whales

Markets, especially in crypto, are extremely volatile.

"Whales" (large players) know exactly where the majority of traders place their stops.

As a result: a brutal movement sweeps through these levels, triggers your orders, and then the price goes back... in the right direction.

👉 You lose while your analysis was correct.

2. The false sense of security

Placing a stop-loss is reassuring. Many traders then believe they can increase the size of their positions, as they feel "protected."

But if the stop triggers, the loss is that much heavier, because the position was oversized.

👉 The stop then becomes a psychological trap.

3. The risk of slippage

A stop-loss is not a guarantee of exit at the expected price.

In the event of a sharp drop or market gap, the order can be executed much lower.

👉 You thought you would lose 3%... sometimes you lose 8, 10, or more.

4. Capital erosion through small losses

A stop that is too tight, placed randomly or too close to the entry, leads to a series of small losses.

Each one seems insignificant, but accumulated, they slowly destroy capital.

👉 Many traders give up not after a big crash, but after a succession of unnecessarily triggered stops.

5. The abdication of responsibility

Relying solely on the stop-loss relieves one from thinking about a real exit strategy.

One places their order "by reflex" without analyzing volatility or market structure.

👉 This amounts to delegating one’s discipline to a simple automatic order... and the market loves to punish this lack of rigor.