In stock index futures trading, we should learn to stop loss and take profit besides managing funds well. In trading, money is chips, and learning to stop loss is to save strength and keep chips, not afraid of not making money. Once the whole army is wiped out, there is nothing to be done. The common fault of mass investors is that when they follow the right market, they make profits and run away. When they follow the wrong market, they are dragged on. As a result, they make small money and lose big money. This is a very dangerous investment method. Futures trading pursues the return on investment, not the winning rate of trading times. Learning to stop loss is the survival foundation of speculative market. Stop loss is the last straw to protect the principal, and it is not the premise of your profit. For stop loss, Buffett's famous saying is widely circulated:

Rule 1 of investment: try to avoid risks and keep the principal;

investment rule 2: try to avoid risks and keep the principal;

investment rule 3: firmly remember rule 1 and rule 2.

to keep the principal is to keep the chance to start over. Therefore, learning to stop loss is a compulsory course for every trader.

stop loss means that when the loss of a certain transaction reaches a predetermined amount, the position is cut out in time to avoid the formation of greater losses, and the purpose is to limit the loss to a smaller range when the investment is wrong. In other words, stop loss makes it possible to gain greater profits at a smaller cost. The fact that there is countless blood in the futures market shows that a wrong transaction is fatal enough, but a stop loss can help investors save the day. Stop loss is an important means to protect yourself in futures trading, just like the braking device in a car. Only when you are good at "braking" in an unexpected situation can you ensure safety. The ultimate goal of stop loss is to preserve the strength, improve the utilization rate and efficiency of funds, and avoid making a big mistake from a small mistake or even causing the whole army to be wiped out.

stop loss is not only an idea, but also a plan and an operation. The concept of stop loss means that investors must understand the significance of stop loss in futures trading from a strategic perspective. Because in the high-risk market, the first thing is to survive, and then we can talk about further development. The key function of stop loss is to make investors survive better. It can be said that stop loss is one of the most critical concepts in futures market investment. Stop-loss plan refers to how to make a stop-loss plan before an important trading decision is implemented. The most important step in the stop-loss plan is to determine the specific stop-loss position according to various factors (such as important technical position or financial situation). Stop-loss operation is the implementation of the stop-loss plan and a significant step in the futures market investment. If the stop-loss plan cannot be transformed into a real stop-loss operation, the stop-loss is still an armchair strategist.

1

Importance of stop loss-alligator principle

Professionals often use alligator principle to explain the importance of stop loss. Alligator principle's original intention is: Suppose a crocodile bites your foot. If you try to get rid of your foot with your hand, the crocodile will bite your foot and hand at the same time. The harder you struggle, the tighter you get bitten. So, in case the crocodile bites your foot, your only chance is to sacrifice one foot. In the futures market, alligator principle is: When you find that your trade deviates from the direction of the market, you must stop immediately, without any delay or any luck. It sounds cruel for crocodiles to eat people, but the market is actually a cruel place, and people are swallowed up or suddenly disappeared by it every day.

Let's look at a set of simple figures: when your funds are reduced from 1, yuan to 9, yuan, the loss rate is 1 ÷ 1× 1% = 1%; If you want to recover from 9, yuan to 1, yuan, the profit rate is only 1 ÷ 9× 1% = 11.1%. If you lose 75, yuan from 1, yuan, the loss rate is 25%; You will need 33.3% to recover the profitability. If you lose 5, yuan from 1, yuan, the loss rate is 5%; You will need 1% if you want to restore the profitability. As the saying goes, if you stay in the green hills, you are not afraid of running out of firewood. The meaning of stop loss is to ensure that you can survive in the market for a long time. Some people even say: stop loss = regeneration.

Soros, a world investment guru, said that there is no risk in investment itself, and only out-of-control investment is risky. Learn to stop losses and never fall in love with losses. Stop loss is far more important than profit, because capital preservation is the first and profit is the second at any time. It is quite effective to establish a reasonable stop loss principle, and the core of a prudent stop loss principle is not to let the loss continue to expand.

2

reasons for stop loss

There are two reasons for stopping loss.

the first is subjective decision-making mistakes. It is a very important idea that every trader who enters the futures market must admit that he may make mistakes at any time. The reason behind it is that the futures market is characterized by randomness, and the game of tens of millions of people makes it impossible to have a fixed law at any time, and the only thing that will never change in the futures market is change. In addition, any law must fail at some time, and this time may be met by smart you. When the probability of failure becomes a reality, or the law fails, it is necessary to stop the loss with a knife.

the second is the objective situation change. For example, unexpected sudden positive or negative fundamentals, major macro-policy changes, wars, coups or terrorist incidents, earthquakes, floods and other natural disasters, institutional capital chain breaks, etc., will all lead to an instant reversal of the futures market.

3

Stop loss strategy

One of the two elements of stop loss design is timing and the other is amplitude, so as long as either of the two conditions is met, the stop loss must be stopped. These two factors are different for different people, different risk preferences, different varieties and different market stages.

the first condition is that the fluctuation range reaches the stop loss. That's to help investors judge possible mistakes in space, but it is suggested that this quota should be set within obvious pressure or support, otherwise the actual execution quota will far exceed the predetermined amount.

The second condition is time. Time is the most important factor in the market, and it is also the most difficult to grasp. Therefore, investors must characterize the market in advance and find out the allowable length of time from the time you place an order to the time when the market forms the breakthrough you want. Once the time limit is exceeded, the risk of your position will suddenly increase, so close your position first. Strict implementation of time stop loss can also avoid the problem that the actual stop loss amount far exceeds the predetermined amount.

relatively speaking, the change of space is more random, but the time structure is difficult to change at zero time. Therefore, of the two, time stop loss is more important and more reliable than space stop loss.

when the stop-loss conditions are met, don't re-judge whether to stop the loss technically. Since the market development is not as you hope, it proves that your previous analysis is likely to be wrong, at least the probability of being wrong suddenly becomes great. Since the stop loss is the minimum security guarantee of the principal, getting lucky at this time means that the ratio of risk and income is seriously out of balance, and executing the stop loss is above everything else! In this way, you will not be eliminated because of your inevitable erroneous analysis, and you will be able to stay in the market until the dawn comes.

however, stop loss is very difficult. In fact, there are many examples of investors setting stop losses but not executing them. In the futures market, the tragedy of traders being swept out of the house is staged almost every day. Why is stop loss so difficult? There are three reasons: first, the psychology of luck. Although some investors know that the trend has broken, they always want to have a look and wait because they are too hesitant, which leads them to miss the good opportunity to stop loss. Second, frequent price fluctuations will make investors hesitate, and frequent wrong stop losses will leave lingering memories for investors, thus shaking their determination to stop losses next time. Third, executing stop loss is a painful thing, a bloody process, and a challenge and test to human weakness.

in short, stop loss is unconditional-stop loss is always right and wrong; It is always wrong to die, and it is also wrong to be right.

4

Stop loss method

How to set the stop loss position? There are the following methods for reference:

1. Balance point stop loss method.

set the original stop loss position immediately after opening the position, and the original stop loss position can be set at 1%~3% of the opening price. When the futures price rises after buying, the stop loss will be shifted to the opening price, which is your break-even point, that is, the stop loss position of the balance point. According to this, investors can effectively establish a "zero-risk" system, and can cash out some or all profits at any time. After the balance stop loss system is established, the next purpose is to close the position. Closing a position is highly technical, but no matter what closing technique is used, the stop loss position must be adjusted accordingly as the futures price rises or falls.

Case

Investors buy at 2 points, and the original stop loss position is set at 195 points. If the future price falls all the way after buying, they can stop at 195 points (see Figure 1).

figure 1 is one of the schematic diagrams of the equilibrium stop-loss method

if the futures price rises after buying, the equilibrium stop-loss is set near 2 points, and the futures price can be cleared out when it falls below (see figure 2).

figure 2 schematic diagram of the balance point stop loss method

if the price continues to rise after buying, the stop loss position can be adjusted immediately (also called the take profit position at this time). If the futures price rises to 21 points, the stop loss can be adjusted to 25 points, the price rises to 215 points, and the stop loss is also "raised" to 21 points.

fig. 3 schematic diagram of equilibrium stop loss method (3)

2. Time stop loss method.

people generally pay attention to the stop loss of space, regardless of the time factor. As long as the price falls to a predetermined price, it will be cut out, which is the space stop loss. The advantage of space stop loss is that you can wait for the big market by sacrificing time; The disadvantage is that after a long wait, it is often necessary to stop loss, which not only delays time but also loses money. Therefore, it is necessary to introduce the concept of time stop loss. Time stop loss is a stop loss technology designed according to the trading cycle. For example, if we expect a certain trading cycle to be five days, and after buying, we will wander around the buying price line for more than five days, then we should resolutely appear the next day. From the perspective of space stop loss, the price may not have reached the stop loss position, but the holding time has crossed the time limit. In order not to expand the loss of time, it is advisable to go out first at this time.

3. technical stop loss method.

setting stop-loss orders at key technical positions can avoid further expansion of losses. There is no fixed model for technical stop loss method. Generally speaking, using technical stop-loss method is nothing more than betting big profits with small losses. Its main indicators are: ① the important moving average has been broken; ② The trend line is broken; (3) The neckline position of head (bottom) such as head-shoulder top (bottom), double top (bottom) or arc top (bottom) is broken; ④ The lower rail of the ascending channel or the upper rail of the descending channel is broken.

4. programmed stop loss.

for various reasons, when the price reaches the stop loss position, some investors miss the square inch, suffer from loss, and change the stop loss position again and again; Some investors temporarily changed their minds and increased their positions against the trend in an attempt to put all their eggs in one basket to recover losses; Some investors simply adopt the "ostrich" policy and let it go after the losses expand. In order to avoid these phenomena, a programmed stop loss strategy can be adopted. That is, with the help of the pre-designed trading system, the computer executes the stop-loss signal and mechanically operates to buy or sell according to the signal. This is a simple and effective way to help investors strictly implement stop loss at present. This trading system helps investors to develop good stop-loss habits, thus avoiding risks in the market, minimizing losses, turning passivity into initiative and being invincible in the investment market.

5

Misunderstandings of stop loss

1. One of the misunderstandings: frequent stop loss, the more you stop, the more you lose.

most newcomers to the futures market will generally learn from their mistakes and make strict stop-loss principles after they have suffered losses due to their untimely stop-loss. However, out of the psychology of "once bitten, twice shy", it is often easy to go to the other extreme, which is because of the unfamiliarity with the market and the lack of confidence in trading, the stop loss is irregular, frequent losses and frequent stops.

The harm of this misunderstanding is also enormous. No matter how large the amount of funds is, no account can bear long-term losses. More seriously, when the amount of funds is getting less and less, investors may gradually lose their confidence in analysis and trading, and always hesitate between stop loss and no stop loss, making it difficult to formulate and implement a reasonable stop loss plan. To prevent this from happening, investors should be familiar with the market rules and price fluctuation characteristics before trading any variety, and make different stop-loss strategies and positions according to different varieties.

2. Myth 2: Losses can be dragged back.

when investors suffer losses, they are often indecisive, take chances and give up the stop-loss plan, hoping to wait for the market to turn around and "drag" the losses back by delaying. Especially when the loss is huge, it will be unbearable psychologically, and I hope to reduce the loss by delaying. This is the most difficult and common psychological misunderstanding in futures trading. In fact, any transaction has the best stop-loss timing and stop-loss position. Once it is missed, it will not only fail to recover the initial loss, but may also lead to huge losses. Especially when there is a loss in contrarian operation, we should act decisively and strictly implement the stop loss. This is the so-called "not afraid of mistakes, only afraid of procrastination".

3. Misunderstanding 3: Stop small losses, not just big losses.

after having certain trading experience, some investors often overestimate their stop-loss ability and fall into the misunderstanding of "stopping small losses and losing big money". For example, when the loss is less than 1%, it can stop the loss in time and rationally, but when the loss exceeds 5%, it is unwilling to stop the loss.

Next, let's take investor B in the stock index futures trading contest in the above case as an example to see what will happen if he always keeps in mind the stop loss or take profit even if he takes unscientific Man Cang trading.

Case

Suppose A doesn't take a stop-loss strategy after selling one lot of IF812 contracts at a price of 4,5 points, while B sells five lots of IF812 contracts at a price of 4,5 points in Man Cang, and he realizes that his trading style is radical and the risk is obviously huge, so he must set up an effective stop-loss scheme to control the risk. So B adopted the equilibrium stop-loss method. Provisions: After entering the market, as long as the futures price rises, all losses will be stopped at 5 points; If it falls, the take profit point will be moved down by 5 points.

the billing results of party a and party b after closing are shown in table 1 (the handling fee is omitted).

from the above operation, it is found that if B does not take the stop loss method, it will be all out of the game on July 25th. This time, he adopted the strategy of stopping loss (profit) in time, which made his loss actually smaller than that of A, thus saving his financial strength and facilitating subsequent transactions. It can be seen that the important role of stop loss strategy in futures trading is unquestionable.