Came across this tweet which I thought was really good.
To rephrase it, there are basically 5 outcomes to any trade:
- Big win
- Small win
- Small loss
- Big loss
By setting a stop-loss, you effectively eliminate number 5 (i.e. big loss).
Isn’t that great?
You have effectively eliminated the WORST possible outcome of the 5 possible outcomes of a trade.
If this isn’t reason enough to adhere religiously to your stop-losses, I don’t know what is.