What is the crocodile rule?

The principle of Professional speculation tells a crocodile rule that when a crocodile devours its prey, the more the prey struggles, the more the crocodile gains.

Suppose a crocodile bites your foot, it will bite your foot and wait for your struggle. If you try to break free from your feet with your arms, its mouth opens and closes and bites your feet and arms at the same time. The more you struggle, the deeper you get.

So, in case a crocodile bites your foot, remember: your only chance is to sacrifice one foot. In the words of the market, when you know you've made a mistake, get out of the game immediately. Stop making excuses, expectations, or any other actions, and get out of the field.

One might ask, is stop loss so important?

Let's take a look at a set of data:

What do the masters think of stop loss?

The three investment principles of Warren Buffett are: "first, keep your principal; second, keep your principal; third, remember the first two."

William O'Neill, author of laughing at the Stock Market, said: "the whole secret of making money in the stock market is to lose as little money as possible when you are already wrong." "

Livermore, one of the masters, said: "if you want to make money in speculation, you have to buy and sell commodities or stocks that show profits in the first place." Those things that float after buying or selling indicate that you are making a mistake. In general, if you still don't improve within three days, get rid of it immediately.

Financial giant George Soros said: "mistakes are not shameful, shameful is that mistakes have been obvious but not to be corrected!" ".

Wall Street also summed up the stock tips into one sentence: "cut off losses and let profits run!" ".

In fact, the stock market is a place of probability, and no stock is bound to rise or fall, because there are too many factors that affect the stock price trend, such as the fundamentals of the company. the trend of the market or there is some inside information that we don't know, whether we analyze stocks from fundamentals, technical aspects or other angles, it is just to increase our probability of making money. So before buying any stock we like, we should consider how we should exit if the stock price is inconsistent with our expectations.

Just like when the market triggers a circuit breaker, what we need to do is to admit our mistakes in time, not to struggle with why the market is going to be a circuit breaker. Because the market can't be wrong. If we are wrong, we must be wrong. If we are wrong, we must admit it.

The reason why stop loss is difficult to carry out

Everyone may know the importance of stop loss, but there are very few people who can actually stop loss. Personally, I think there are mainly the following reasons:

1. Overconfidence: because no matter which way the stock is analyzed, it should rise. If the stock falls, the market must be wrong.

two。 Listen to the news: it doesn't matter even if the stock falls, because there is news that the stock will be reorganized, let alone whether the news is accurate, even if it is reorganized, will the restructuring be successful? will the market buy it even if the restructuring is successful? maybe the so-called main force will still take advantage of good shipments.

3. Dead shoulder: Petrochina Company Limited, who bought 48 yuan, did not stop loss in time when he fell to 43 yuan, and was reluctant to cut meat when he fell to 30 yuan. Who would be willing to cut meat? To sell it when it falls to 20 yuan is to unload the thigh, who can do it? When it falls to 8 yuan, it can only be named as leaving the stock to the son. in fact, this kind of stock is left to the son, and the son can only leave it to the son. In the end, I asked you how much sorrow you could have, and it was the full warehouse of Petrochina Company Limited. Although this example is extreme, it is by no means an exception. We can take a look at the value of a Chinese ship that once cost 300 yuan. Of course, some of the last round of bull market bought, this round of bull market release hold up, this is relatively lucky, but the time cost and opportunity cost is also huge.

4. Fear of going up after cutting: it is true that in many cases, it begins to rise as soon as it stops and sells directly at the lowest point, but what does it matter? maybe 9 of the 10 stops are wrong, but the last time it allows you to avoid the stock market crash and Petrochina Company Limited's long bear journey.

The above mentioned situations do not mean to belittle, these are all caused by human nature, and human nature is interlinked. It is believed that investors who eventually survive in the market will go through the process from never willing to stop loss to putting stop loss into the blood deep into the bone marrow. Although how much we earn depends on the market, how much we lose depends on ourselves.

How to stop the loss?

Stops are mainly divided into space stops and time stops:

1. Space stop loss

Mainly from the price point of view to consider the stop loss.

Fixed range stop loss:When the stock price falls by a fixed range of the cost price, the specific range can be determined according to the individual's own risk preference. Those with high risk preference can be set at 20%, but it is not recommended to exceed this range. Otherwise, it will be more difficult to get back to the cost after the stop loss. If the risk preference is low, it can be set to 10%, but it is not recommended to be too low, or it may be stopped frequently.

Drop below trend line stop loss:Investors who do trend tracking can set a certain moving average as a stop line, short-term trend tracking can use the 20-day line, and long-term trend tracking can use 120 days. When the stock price falls below the stop-loss line, you have to start cutting and sell.

Sell with dead cross: refer to a certain indicator, such as KDJ or MACD, and sell regardless of profit or loss when the indicator is dead.

two。 Time stop loss

Let's take a look at the less time stops we use. Time stops are mainly considered from the perspective of capital utilization, based on the dimension of the trading cycle. Time stop is generally used together with space stop to fully control the risk.

Finally, I would like to share with you a more interesting point of view. I have read an article about trading before. the author thinks that the realm of a trader can be seen through a trader's understanding of losses. The author divides the understanding of loss into five levels:

• The first level: refuse to face losses.

• The second level: try to avoid losses.

• The third level: admit the rationality of the loss.

• The fourth realm: realize that profits and losses are of the same origin.

• The fifth realm: gain and loss follow the fate, there is no increase or decrease in the heart.