“Cutting losses is losing” — This misconception is melting your account

What image do you have of the word “stop-loss”? “Loss,” “failure,” “regret”—if you harbor such negative emotions, that is the fundamental reason you cannot execute stop-loss.The misconception that stop-loss equals loss is what is eroding your account.

Being unable to stop-loss is the biggest struggle many traders face. At its root is the erroneous belief that stop-loss equals loss. This time, we will break this misconception and carefully explain the true meaning of stop-loss.

What happens when you equate stop-loss with loss

If you think stop-loss is a “loss,” naturally you’ll hesitate to stop-loss.Anyone doesn’t want to lose.So what happens as a result?

In a moment where you should cut losses, you hesitate because you don’t want to admit defeat. You cling to baseless hope that “it may come back if you wait a little longer.” But as you wait, unrealized losses balloon. A small loss at first can grow into a devastating loss that unsettles your account. And in the worst case, you may endure until you can’t, and stop-loss at a catastrophic level or get forcibly liquidated.The misconception “stop-loss equals loss” turns small losses into fatal blows.

Ironically, the fear of losing leads to greater losses. By avoiding stop-loss, you end up inviting large losses that you could have avoided.

Stop-loss is not “loss” but “expense”

Then, how should we reinterpret stop-loss? One effective way isto regard stop-loss not as loss but as necessary expense.

Every business incurs expenses. In the business of trading, stop-loss is a cost needed to make profits—an expense. You cannot expect to win in every trade; losses will occur at a certain rate. Stop-loss to minimize those losses is a natural expense to continue the business. Just as a business cannot exist without paying expenses, trades without stop-loss cannot exist.

Stop-loss is an act to “protect the next one”

Another way to view stop-loss is to“protect funds for the next trade”.

Trading is not a one-time event. It is a long battle that continues for dozens or hundreds of times. If you lose a lot of capital in one trade, you won’t have room to trade next time. Stop-loss is an act of keeping losses small to protect capital and leave room to take on the next opportunity.Stop-loss is not a backward-looking act of admitting defeat, but a forward-looking withdrawal to win next.

In war, stop-loss is a “strategic retreat.” Pull back from a losing battle, preserve your forces, and prepare for the next battle you can win. It is far wiser to retreat and survive than to charge blindly and perish. Stop-loss is a smart judgment to survive, not a defeat.

Those who can stop-loss, endure and win

As repeatedly emphasized in previous installments, successful traders are good at stop-loss. They do not think stop-loss is a loss.They calmly execute stop-loss as “an expected cost” and “a retreat to protect the next trade.”

When you can execute stop-loss without emotion, mechanically, you withdraw while the loss is small and avoid large losses. This power to stop-loss is an essential skill to survive in the markets for a long time. And the foundation of that skill is the correct belief that “stop-loss is not a loss.”

“Stop-loss equals loss” — this misconception dissolves your account. Thinking stop-loss is a loss makes you unable to act. Unable to act leads to expanding losses. Please break this vicious cycle. Stop-loss is not a loss. It is a necessary expense for profits and a forward-looking withdrawal to protect the next trade. With this understanding, you will become able to stop-loss and transform into a trader who can protect your account.