What does stop loss mean?

1. Stop loss means that when the loss of an investment reaches a predetermined amount, it will cut the position in time to avoid further loss. Its purpose is to limit the loss to a smaller range when the investment goes wrong. An important difference between stock investment and gambling is that the former can limit the loss within a certain range through stop loss and maximize the return on success. In other words, a stop loss makes it possible to get a bigger profit at a smaller cost.

2. Take profit, also known as take profit and stop loss, is to ship at your target price, and stop loss is to ship at the price where you can bear the risk loss. The concept of take profit should be closed when it is good and should not be maximized. The center of thought is a "stop", thought determines action, and the methods of stock trading are essentially different.

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Importance of stop loss:

Professionals often use the crocodile principle as an example. The original intention of the crocodile principle is: suppose a crocodile bites your foot. If you try to get rid of your feet with your hands, crocodiles will bite your feet and hands at the same time. The more you struggle, the more you get bitten. So, in case a crocodile bites your foot, your only chance is to sacrifice one foot.

In the stock market, the crocodile principle is: when you find that your trading deviates from the direction of the market, you must stop immediately, without any delay or luck. Crocodiles eat people sounds cruel, but the stock market is actually a cruel place, and people are swallowed up or disappeared by it every day.

Reference: Baidu Encyclopedia-Take Profit and Stop Loss