Reason Why Traders Do Not Use A Stop Loss

Fellow traders, most of the time you might have heard that it is good to trade with a stop loss. I relate stop losses to buying an insurance for our uncertain future.
Strange to me is that most of the experts or analysts tell you to keep the stop loss but 85% of the time people actually trade without a stop loss (Source: SEBI reports)
What makes it so difficult that people just can’t keep it?

  • Over exposure : If you speak with any broker and ask them what is the first question a trader asks while they meet them the first time to open trading a trading account; They will answer that they ask for the ”How much limit or exposure they can provide on their margin.”
    The fortune of that trader is sealed on the same day (from that very first day a time bomb starts ticking against the wealth of the that trader. Sooner or later it is bound to explode)

When a trader trades with such a huge exposure, if any trade starts going against him, that leads to a huge dent on his corpus amount leading to mental paralysis. That further leads to disaster.

  • We as humans are programmed not to accept our defeat, it’s at the core of our evolution and we are able to survive because of this mental coding. You might have seen so many people coming back to the markets after loosing everything. So due to this it is very hard for us to accept that we’ve lost in a trade. So we keep on waiting for the trade to return in our favour.
  • Booking losses is an art that need rigorous training. I remember one of my trading gurus saying that if your success rate is more than 60%, it means there is something terribly wrong. In a bad market we should loose money like we make money in a good market.
  • Traders always aim for the holy grail in trading. They think that will be the answer for all their hardships they are facing because of trading financial markets.