Stop Loss:The truth

Its a myth.
i assume here that u know what stop loss orders are.Ideally if ur stock takes a hit u r stopped out,or u might have used the stop order to protect ur gain.This is conservative,its an insurance ,it a form of controlling your own destiny.
How cud anyone quarrel with this?
Sorry i disagree.To my thinking any strategy that sounds so wise,so wholesome, so mature and so widely recommended has to be wrong and this one is.
This is the era of gapup opening,the 100 point freefall and the out for lunch specialist.A s/l order isnt going to help u much if ur Tata Motors fails the euro 3 test and opens down 100 rs the next morning.Oh u had a s/s at 940 sorry the best price u can get is 838.
History tells us to buy when its cheap.S/L strategies encourage investors to get rid of stocks when they r inexpensive.
If u have a company that has good fundamentals,y take the chance of being stopped out due to an IPO scam conversely also if ur research is good and if u believe its time to short on advances y take the chance of being stopped out due to lower circuit and any short rally on a fool of a fm's statement or a foot in the mouth cpim.
Take stock.

I also read somewhere that in todays online trading scenario, your stop losses are visible and known to the market maker (mm) and often, expecially if its a trailing stop loss, the mm deliberately moves the stock prices to trigger stops and buy your stock at lower than you would have wished to sell. I would request all traders with experience of this to comment.

I do not think that is the case on the NSE.

Stop Loss is another sensible-sounding concept that is much easier to acknowledge than actually to execute when real money is on the line.

No one wants to exit a trade with a loss. They don't want to lose money. More importantly, they don't want to admit they were wrong. You can always think of many reasons to hold on to a losing trade. You can hope that the market will suddenly turn around and give you a profit instead of a loss. This was what happened to the thousands of traders recently who held on to their losing long positions hoping for a turn around. All of them lost rather large sums of money many of them could not afford to lose that much.

This is another example where successful traders have learned to do the hard thing. If there is one thing consistent in the stories of how good traders turned themselves around from being bad traders, it is their attitude about losses. Professional traders accept that losses are part of the game. Since the markets are mostly random, the best trading methods will always have numerous losses. Professionals do not equate losses with being wrong.

It is precisely because correct trading methods invariably generate many losses that it is important to keep the individual losses small in relation to the overall size of the account. In order to keep trading, you must preserve your capital. If you can keep trading in the direction of the trend, the big profits will come. However, if you take too many large losses, your capital will be wiped out before you can enjoy the big profitable trades.

The laws of probability insure that regardless of your approach, you will inevitably suffer some long strings of consecutive losses. If you are risking too high a percentage of your account on each trade, before long one of these unavoidable losing streaks will blow you away. Keeping losses to about one percent of your account size is optimal. With smaller accounts, the percentage will have to be larger. Five percent on one trade is probably the highest prudent level of risk.

Preventing large individual losses is one of the easiest things a trader can do to maximize his chance of long-term success.

Hi Amitt29,

I feel that Traderji has explained the virtues and benefits of a stop loss very well. If your stop has been run very often which leads you to believe that market makers are running your stop, I would be inclined to think that your stops are too tight.A rethink about where you place your stop loss may help.
Stop losses are vital to a traders survival.

As regards too the gaps in the market a stop loss is not meant for this purpose, these gaps are quite often anticipated with a judicious use of technicals, and following news based events and when anticipated, these gaps can actually be taken advantage of via the fno route. Taking your own example of tata motors if there is any adverse news supported by technicals it would be worth your while to purchase a put and take advantage of any such gap down and at the same time protect your investment.

All the best

Its not that its my experience but what i have felt after talking to a lot of investors.(Short term i.e)
And there is a difference between trading and investing.
As i have been implicit enuff in my last paragraph.

thanks traderj. your words are encouraging. i had placed stop loss in my trade of sathyam but i failed to adhere to it and was forced to sell at 778, position at 851. 2 lots. if only i had adhered to stop loss at 833, i would have not lost much

Your posts are awesome Sudoku bhaiyaa!! well, most of them

This post can be best described about a very timely post,thks.