In trading, learning to set stop-losses is considered the core of the "first lesson" because it is the cornerstone of risk management, directly related to a trader's survival ability and the potential for long-term profitability. Here are several key points explaining why stop-losses are so important:

1. Control risk and protect capital: The core of trading is "staying alive": the market always carries uncertainty, and stop-losses act as an "insurance mechanism" to prevent significant capital loss from a single mistake.

For example, if each loss is controlled within 2% of the account, even with consecutive mistakes, there will still be enough funds to make a comeback. Avoid catastrophic losses: There are numerous cases of not using stop-losses (such as being fully invested and losing all assets), and stop-losses can forcibly cut losses and prevent emotional resistance to trades.

2. Combat human weaknesses: Break the "hope" trap: Human nature tends to "expect a price rebound," while stop-loss rules force traders to acknowledge mistakes and avoid falling into wishful thinking. Reduce emotional interference: A clear stop-loss point can prevent temporary decision changes due to fear or greed, maintaining rationality.

3. Improve capital efficiency: Release opportunity cost of funds: After a stop-loss, funds can be invested in other potential opportunities rather than being stuck in losing positions for a long time. Avoid the time cost of "holding on": For example, a 50% loss requires a 100% gain to break even, while timely stop-losses can exchange small losses for quicker recovery.

4. Maintain trading discipline: Systematize trading: Stop-losses are a key part of the trading plan, helping to establish repeatable strategies rather than relying on subjective judgment. Foundation for long-term stability: Statistics show that most successful traders have a win rate of less than 50%, but they achieve profitability by "cutting losses and letting profits run."

5. Respond to market uncertainty: Protection against black swan events: Sudden events (such as policy changes or earnings reports) can cause prices to plummet instantly, and preset stop-losses can help avoid extreme risks in advance. Avoid liquidity risk: In extreme market conditions, not using stop-losses may lead to liquidation.

6. Common misconceptions for beginners: The illusion that "not using stop-losses can still make money": Beginners may overlook risks due to a few "successful" experiences of holding on, but a single extreme market event can destroy an account.

Stop-loss ≠ failure: A stop-loss is part of the trading cost, just like paying rent for a store; accepting small losses is a necessary price for long-term profitability.

How to scientifically set stop-losses?

Technical stop-loss: Based on support and resistance levels, volatility, or pattern breakouts.

Capital management stop-loss: Individual losses should not exceed 10% of total capital.

Time stop-loss: Actively exit if the position does not develop as expected.

Summary: The essence of a stop-loss is acknowledging the unpredictability of the market and controlling risk within an acceptable range through rules. It is not only a technical tool but also a reflection of a trader's psychological maturity—accepting the inevitability of losses allows one to focus on the long-term advantages of the system.

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