Reason Why Traders do not put Stop Loss

By | December 11, 2014

Fellow traders most of the time you might have heard to trade with a stop loss. I relate stop loss to buying an insurance for our uncertain future.
Strange to me that most of the experts or analysts tell you to keep stop loss but 85% times people do trade without stop loss ( Source SEBI reports )
What makes it so difficult that people just can’t keep it.

  • Over exposure : If you speak with any broker and ask him what is the first question a trader ask while they meet them first time to open trading a trading account. They will answer that they ask for the ” How much limit or exposure they they can provide on their margin.”
    The fortune of the that trader sealed on the same day ( from that very first day a time bomb start ticking against the wealth of the that trader. Sooner or later that is bound to explode)

When a trader trade with such a huge exposure if any trade start going against that trader that leads to huge dent on his corpus amount that he tend to become mentally paralyses. That further leads to disaster.

 

  • We as a human programmed not to accept our defeat, that is the core our our evolution we are able to survive because of this mental coding. You might have seen so many people coming back to market after loosing everything in market. So due to this it is very hard for us to accept that we lost in a trade. So we keep on waiting for trade to return in our favour.

 

  • Booking looses is an art that need rigorous training. I remember one of my trading guru saying that if your success rate is more then 60% means there is something terrible wrong. In bad market we should loose money like we make money in good market.

 

  • Traders always aim for holy grail in trading. They think that will be the answer for all their hardships they are facing because of trading financial markets.

11 thoughts on “Reason Why Traders do not put Stop Loss

  1. Noble

    Plan your stop loss on how much you are willing to lose.

    For example if you are trading with 1L and if you are ready to risk 1.5% of 1L ie 1,500 then you can buy 500 shares and keep stop loss 3 points up/below your entry or buy 1000 shares and keep your SL at 1.5 below/above your entry.

    Also take into account the volatility of a stock.
    With a SL order you are limiting the amount of damage that can be done to your trading account.
    As mentioned in the post, not placing a SL order is the way to disaster.

  2. shail

    Actually Correct entry is important then you know ur targets and SL…..If you miss the bus…..keep yourself away…..many people think they have missed the bus …then they get irritated and enter in the opposite direction……its pshycology of a trader and big players know this very well….i am still learning but very near….

  3. Rajan

    Use SL .6% lower/higher than Crucial support or resistance in cash mrk. ( Rs 6 +/- in 1000 rs Script)
    less SL will be triggered .

  4. Rajiv Jamwal

    even I am still grappling with this problem although vastly improved in my last 2 years of trading in Fno. A rough calculation shows that my trading returns would have been more by 50% had I been prudent enough to apply SL in my initial trading years.Never mind this is the price I paid for learning this simple basic fact

  5. mickey

    sir , could you tell me from where do u extract fii activity in derivatives?

  6. ashish k doshi

    Sir…SL is often done rather than target… Strange but true…why ???

  7. MRINAL SAHA

    Real fact that we are not ready to accept the loss; as a result loosing everything.

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