Stop loss is also called "cutting meat", which means that when the loss of an investment reaches the predetermined amount, the position shall be cut out in time to avoid greater loss. Its purpose is to limit the loss to a small range when making investment mistakes. There are three main stop loss methods: quota stop loss method, technical stop loss method and unconditional stop loss method.
1. Quota stop loss method
This is the simplest stop loss method. It refers to setting the loss amount to a fixed proportion, and closing the position in time once the loss is greater than this proportion. It is generally applicable to two types of foreign exchange investors: first, investors who have just entered the market; Second, investors in high-risk markets (such as futures markets). The mandatory effect of quota stop loss is obvious, and investors do not need to rely too much on the judgment of the market.
The setting of stop loss proportion is the key of quota stop loss. The proportion of quota stop loss consists of two data: one is the maximum loss that investors can bear. This proportion varies with investors' mentality and economic endurance. It is also related to investors' profit expectations. The second is the random fluctuation of trading varieties. This refers to the disorderly fluctuation of prices caused by the behavior of market trading groups without the influence of external factors. The setting of quota stop loss ratio is to find a balance point between the two data. This is a dynamic process, and investors should set this ratio based on experience. Once the stop loss ratio is set, investors can avoid being knocked out by unnecessary random fluctuations.
2. Technical stop loss method
More complicated is the technical stop loss method. It combines stop loss setting with technical analysis, and sets stop loss orders at key technical positions after eliminating random market fluctuations, so as to avoid further expansion of losses. This method requires investors to have strong technical analysis ability and self-control. Compared with the former method, the technical stop loss method has higher requirements for investors, and it is difficult to find a fixed model. Generally speaking, the use of technical stop loss method is nothing more than gambling with small losses and large profits. For example, after the off track purchase of the rising channel, the foreign exchange speculators wait for the end of the rising trend before closing their positions, and set the stop loss position near the relatively reliable average moving line. As for spot gold, when the price rises, the 5-day moving average can maintain the short-term trend, and the 20 or 30 day moving average will maintain the medium and long-term trend. Once the rising market starts, you can intervene at the 5-day moving average and set the stop loss near the 20 day moving average. You can not only enjoy most of the profits brought by the stage rising market, but also get out in time when the head is formed to ensure profits. At the early stage of the rising market, the distance between the 5-day moving average and the 20 day moving average is very small. Even if you read the wrong market, stop near the 20 day moving average, and the loss will not be too large.
For another example, after the foreign exchange market enters the consolidation stage (trading Bureau), the box shape or convergent triangle shape usually appears, and the deviation rate between the price and the medium-term average (generally 10-20 antennas) gradually shrinks. At this time, investors can intervene at the technical maximum deviation rate and set the stop loss at the maximum deviation rate of the board. In this way, low in and high out can be obtained. Once the deviation rate of the price to the medium-term moving average is magnified again, it means that the market has ended. At this time, if the price turns into a downward trend, investors should decisively leave the market. The board is relatively unilateral. At the early stage of the trading, the market was unstable and had a great shock. Traders can boldly intervene. At the later stage of trading, the stop loss range should be appropriately reduced to improve the insurance coefficient.
3. Unconditional stop loss method
The stop loss without cost is called unconditional stop loss. When there is a fundamental turn in the fundamentals of the market, investors should abandon any illusions and fight at no cost in order to preserve their strength and fight again at the right time. Fundamental changes are often difficult to reverse. When the fundamentals deteriorate, investors should make a decision and cut their positions out.
To sum up, stop loss is a necessary means to control risk. How to make good use of stop loss tools, foreign exchange investors should have their own styles. In trading, it is very important for investors to grasp the overall position and trend of the market. Following the trend and making good use of the stop loss position is the only way for investors to win.
