Only by withstanding fluctuations can one grasp trends
Brothers, today let's delve into a topic: stop loss, should it be set large or small?
This question is like asking whether to find a partner with complementary or similar personalities; there is no standard answer, only what is suitable. I have seen those who set large stop losses endure a serious injury from one mistake; I have also seen those who set small stop losses be thrown off the bus at the slightest market shake, missing the entire trend.
Large stop loss: tough, but afraid of heavy punches
The biggest advantage of a large stop loss is its high tolerance for error. For example, when entering a position at the same breakout, setting the stop loss at the lowest point (large stop loss) compared to setting it at the second-lowest point (small stop loss) has a significantly higher success rate. The market often experiences deep pullbacks, and if the stop loss is set too small, it can easily be triggered, leaving one to watch the market surge in the original direction while being left behind.
But the risk of a large stop loss is here: once the direction is wrong, it can lead to significant losses. For the same breakout entry, the loss space of a large stop loss may be more than four times that of a small stop loss. This not only hurts the account but also affects the mindset—when the stop loss amount is large, psychological pressure increases significantly during the holding period, easily leading to fear and affecting judgment.
Small stop loss: flexible, but easily shaken out.
The core advantage of small stop losses is the small loss per trade and low psychological pressure. Each time a position is opened, you know that the worst outcome is just a small loss, which stabilizes your mindset and naturally improves your execution.
However, the problem with small stop losses is that they are easily shaken out by market noise. In reality, small stop loss technical levels are usually set at the middle of the fluctuation range, unlike large stop losses which are set at the high and low points of the range, leading to small stop losses being triggered more easily, resulting in frequent stop losses.
I have seen quantitative data showing that a small stop loss strategy with 1 ATR has a win rate of only 29%, while a large stop loss of 3 ATR can achieve a win rate of 48%. Although small stop losses incur less loss per trade, after several consecutive stop losses, the total can add up significantly. More critically, it can cause a serious blow to trading confidence.
There is no perfect solution, only the choice that suits you best.
According to quantitative backtesting, within a reasonable range (1-3 ATR), the net profit and maximum drawdown of different stop-loss amplitudes are actually not much different in the long run, but the trading experience is completely different.
The small stop loss strategy has a high trading frequency (under the same strategy, 1 ATR stop loss trades 5000 times, while 3 ATR stop loss only 3100 times), with a low win rate (29% vs 48%), but a high profit-loss ratio (3.96 vs 1.79). It is suitable for aggressive personalities who like frequent trading and pursue a high profit-loss ratio.
Large stop loss strategies have low trading frequency, high win rates, and small profit-loss ratios. They are suitable for those who are patient, do not like frequent trading, and can endure larger drawdowns.
My choice: small stop losses allow me to sleep well.
After years of practical experience, I chose the small stop loss route. Not because it can earn more, but because it matches my personality: I can't see the end of the big trend, but I can strictly control individual losses; I cannot predict market fluctuations, but I can manage my emotions well.
In the highly volatile cryptocurrency market, I recommend adjusting stop losses based on market characteristics: when the trend is clear, appropriately enlarge the stop loss to allow space for market corrections; tighten stop losses in a sideways market to reduce ineffective stop losses.
The key is not to imitate others, but to recognize yourself: your risk tolerance, patience in holding positions, and emotional stability determine which stop-loss method is more suitable for you.
Truly excellent traders are not about how skilled they are technically, but about finding a trading method that perfectly matches their personality. The size of the stop loss is not the focus; the key is whether you can persist long-term and form a stable system. A stop loss setting that suits you is the best setting.
Remember, there are always opportunities in the market, but you only have one capital. Protect it well, and you can stay in the game. Follow Bin Ge to learn more firsthand information and cryptocurrency knowledge at precise points, becoming your guide in the crypto world; learning is your greatest wealth!
