What is the underlying logic behind stocks making money?
You may have heard the saying that you must learn to cut your losses when trading.
There is nothing wrong with this saying, but many people take it wrong. It is not enough to describe the absurdity of his learning results. Some people say that you should never lose more than 10% after buying, or you should stop your losses immediately. If you continue to lose, your losses will continue to grow. Cutting losses before they grow and closing with a smaller loss is the most effective way to protect capital. But someone said, no, the theory I heard was that you can't lose more than 20%, and you only need to stop if you lose more than 20%. At this time, some people said, you are wrong, I a period of time before the teacher of a short master, his stop loss line only 3%, more than 3% must stop loss. Other popular stops are 5%, 8%, 15% and so on. Are these people right or wrong? Every one of them is right, but they are also wrong. The essence of stop-loss theory is never to sell at a loss, let alone discuss how much loss is appropriate to sell. What is stop loss? Stops are a corrective mechanism for your own mistakes, and unless you are always right, you will die a terrible death without stops. Only the market is always right, anyone can be wrong, so anyone must have a stop loss. However, the form of stop loss, but not the same. I always say that you have to understand why a stock is going up. Because if you understand why it's going up, you don't know if it's going to go down in the future. If you don't understand, or don't understand fully enough, no matter how much money you make in a bull market, you will give it away in the future. There is a common sense that everyone must be clear, the bull market is the main reason for retail losses. See clearly oh, is the bull market leads to retail losses, not bear market, I wrote correctly. Because only the bull market, after the boom, retail investors will enter in large quantities. And then there was no more.
Price speculation send stop loss a stock rise will have a lot of reasons, different people to its understanding and operation will be different. Price speculation send stop loss, is in line with common sense stop loss. Extreme chasing board group stop loss line, is indeed 3%. According to common sense and theory, when the stock price is sealed on the limit board, the next day is bound to have rise premium, namely must earn. What does it mean to have a loss of more than 3 percent as a result of a must-earn event? The cap was broken that day, or it wasn't broken but there was a problem with this stock. Either way, it's a must go for the expendables. They buy the theoretical foundation, is the plate will go up. Results found that the trend is not in line with their expectations, that is more than a loss not waiting to be buried alive yao. And the so-called 20% stop loss line, this looks like running with the bull bear theory. This method of operation, is the trend trading method, only eat the bull market, avoid the bear market. A unit to buy more than 20% of the loss, according to the price speculation of the cow bear points rudder theory, this is likely to fall into a bear market trend, should cut meat.
Similar 5%, 8%, 10%, 15%, all have their own theoretical indicators. But the problem with all of this is that it's not for retail investors. Because retail investors can't read trends and market sentiment, and they don't have iron-clad operating discipline. Others stop loss, is to cut off the loss, let profit run. Retail stop loss, is truncated loss, profit did not. How high will the rise of Kweichow Moutai go, how much will the correction fall, and where will the final peak of this bull market be? If you can't answer the simplest of questions, how can you say that a XX% retracement of your purchase is a stop loss? Of course, the bull market does not say the top, and anyone who talks about the high will be completely wrong. I use this example just to tell you that if you set a stop loss point at a certain percentage point, it is as absurd as guessing the top of the bull market. Of course, the outcome is wrong in a complete mess, can only repeatedly cut off their losses, the final amputation. Some people can only accept a 10% loss, invest 1 million, when the loss of 10% out of the decisively. Thought you were stopping your losses. Good call. And then what? Then I figured I had to find a way to make back the $100,000 I lost, because I had stop-loss protection, 10% at most. So we lost another $90,000, then we lost another $81,000. Calculate finally calculate, hold that at the beginning all the time immovable, what seem to be deficient still some less. Finally woke up, ready to die with a share immovable, protracted war. If your level is unprofitable in the current market, then a few trades will only make you lose more. Stops don't protect you, they just give you more experience of loss patterns. Even if you do make a little money, it will go away quickly.
Stop loss for value Investors In theory, there is no stop loss for value investors. Value investors emphasize buying stocks when they are below their value and selling them when they are above their value. In that case, how to stop the loss. If you buy and the stock goes down, you should always add to the position and hold on for the long haul, never stop your losses and sell. Value investors only sell when the stock price has skyrocketed far beyond its value. The lower it goes, the more value investors should buy. There's no reason why you're willing to buy something when it's expensive and not when it's cheap. If you think this stock can stop your losses, why don't you give up buying it at the beginning and wait for it to get cheaper. Buffett said that if you don't want to own a stock for 10 years, you shouldn't own it for even a minute. Many fund managers, during the bull market of 2015, bought a lot of stocks on this theory and were prepared to hold them for a decade. When the crash hit, they repeatedly checked the fundamentals of listed companies and found no change in performance. Since the fundamentals have not changed, it is natural to buy more falling, there is no reason why the stock is cheaper, but I dare not buy. And then bam, the crowd gets cold. I don't know if pure value investing is right for America, but it certainly isn't right for China. To play happily in China's stock market, you must master these two contradictory but unifying theories. Both investing and speculating. After a thorough understanding, into the empty cup thinking, that is, there is no theory, do not have me, everything follow the market. True Stop-loss Stop-loss is the essence of trading and something any trader must learn. But my understanding of stop-loss is that you need to know why you're buying a stock. It's based on Warren Buffett's theory, but it doesn't have to be 10 years old. Then, you need to keep an eye on whether your support is still there. If you buy according to kamikaze logic, the stock price must go up, just a little bit lower, your buying logic is gone. When the logic of buying is lost, you should naturally sell. If your buying logic is Buffett's, hold for the long term to eat the dividend and share in the company's growth. So as long as the dividend rate is right and the company is growing, you shouldn't sell. On the contrary, you have to sell if the dividend rate is too low for you to tolerate, or if the company loses the growth you expected. That's why it's important to know why you're buying a stock before you buy it. If you don't know why you want to buy something, you'll just sell it in a muddle. You can't blame me for that. I'm familiar with very few stocks. First there were 20, then 10, then a few. Because I study alone, there is no large number of researchers to help me collect information, usually focus on a few is already very good. Each one has to be figured out, take months to figure out that. If you don't, you don't know how to operate at all. Stop losing 3%? Stop losing 10%? Stop at 20%? Don't you think it's a joke to operate your precious capital on this principle? Since when is the secret to making money so easy and cheap? Stop loss is really cut leek sharp tool, adhere to stop loss of semi-skilled shareholders and from more than loss of novice shareholders, will be even cut off the root. What is the best thing a novice should learn? In my experience, you should not learn to stop losing, you should learn to gain. Because human weakness is loss aversion, extreme loss aversion, but insensitivity to profit. If you don't sell, you lose. If you sell, you lose. I can accept not making money, but I can't accept any loss. It's hard to watch. So many novices try to sell their winning stocks to cover their losing ones. Only when they are tortured into despair will they sell at a huge loss. At this time the new people will take two paths: the first is heartbreak, and then completely out of the stock market. The second way is to evolve yourself, pick up a few books, learn a word called stop losing, become a slacker. Embark on the first road of shareholders, will loudly scold A shares is A liar. Embark on the second road of semi-skilled shareholders, after frequent stop loss, with countless losses, despair again, and then continue to scold A shares is A liar. Then, a lot of amateurs decided not to lose, and began to die. And then... You can see, new people want to enter the wrong way only, final result is 10 do not put 1, can stop loss is dead and wounded disastrous. The best way is not to walk on this road at the beginning, that is, to learn to hold profits at the very beginning. Give you desperately make money stock, don't be afraid of high, patient hold, perhaps the profit of a stock is enough to hedge your 10 stock losses. If you continue to add to this winning stock, so much the better. I believe you have also heard of the tragic death of stock investors who continue to fill positions on the way down. Someone will read the weight loss secret book I wrote upside down, as the weight gain secret book. That you how won't those fall to fill the stock as negative teaching material, turn over as rich secret book? Of course, all this applies only to value investing. If you're in the world of price speculation, you go up and add positions. I'm sorry, but you're still gonna die a terrible death. The reason I don't speak, use your brain to think why. With all this in mind, you can come up with a true stop-loss strategy, or trade stocks.
In this test phase, there is no stop loss. It's all Buffett's theory. First, when you bought, you made sure it was a company with a good dividend, great performance, a low valuation and a history of steady growth that you intended to own for 10 years. And then, the position that you hold, which is just a test position, is very light, only your total position is 1/10 or even 1/20. Have what good stop loss of, instead you won't kui which go, kui how many come back early evening. When you find out that some of the white-horse stocks you're testing have done particularly well. Don't ask why. Just add up.