Recently, I’ve seen many novice investors suffer heavy losses, mainly because they didn’t set proper stop-loss points. I’ve also gone down this road myself, so I especially want to discuss this topic.

Stop-loss is actually very simple: when the loss reaches a certain level, actively accept the loss and exit, rather than holding on stubbornly. The stop-loss point is the price level at which you decide to exit. It sounds easy, but executing it really requires the right mindset.

The most tragic example I’ve seen is someone who bought Apple stock with 10 million USD, and it kept falling. When it dropped 10%, they were still waiting for a rebound; at 30% down, they started to regret; by 50% down, their account was only worth 5 million USD. The most desperate part is, to break even now, the stock price would need to rise 200%. Many people can’t hold on until then—usually, after a drop of more than 50%, their mentality collapses, and they finally sell out, losing more than half or even all of their capital.

So why set a stop-loss point? First, it can prevent losses from growing larger and larger. If you had stopped loss at a 10% loss, the remaining 9 million USD would only need an 11% gain to break even, which is much more realistic than waiting for a 200% increase. Second, it improves capital utilization. Instead of tying up money in a declining asset, you can invest in other opportunities.

Often, the reasons we buy are actually wrong, or the reasons that were valid at the time no longer hold as the environment changes. Setting a stop-loss point gives you a chance to “correct” your mistakes. Especially during market panic or irrational sell-offs (like black swan events such as a pandemic), timely stop-losses can help us avoid systemic risks.

From a technical perspective, if a stock breaks below an important support level, it often continues to fall sharply. Not setting a stop-loss at this point can lead to increasing losses.

How to find the right stop-loss point? The simplest way is to set a percentage loss, such as 10% or 15%. But if you want to be more precise, you can use technical indicators for assistance.

For example, look at resistance and support levels. In a bear market decline, if the price repeatedly hits a certain level and can’t rebound, that level is a resistance level. You can set your stop-loss just below it. The MACD indicator is also useful; when the short-term line crosses below the long-term line, forming a death cross, it’s a clear downward signal, and you can set your stop-loss there. Bollinger Bands can also be used—when the price breaks below the middle band from the upper band, it’s a sell signal. An RSI over 70 indicates overbought conditions and can also serve as a stop-loss reference.

In actual trading, there are three ways to set stop-loss points. The simplest is manual stop-loss, where you actively close the position yourself. A more practical method is conditional stop-loss, where you set a price level, and the system automatically executes the sell, so you don’t have to monitor the market constantly. The smartest is trailing stop-loss (also called moving stop-loss), which follows the price automatically and adjusts the stop-loss level to maximize profit protection. For example, set a 2-point trailing margin; if the price continues to rise, the stop-loss moves up accordingly, protecting gains while allowing the trend to develop further.

Ultimately, a stop-loss point is an “emergency valve” in investing. Finding the right stop-loss level allows you to cut losses in time during wrong trades and keep losses within an acceptable range. Whether using percentage methods, technical indicators, or trailing stops, the key is to execute with discipline—don’t change your plan out of hope or fear. Only then can you survive longer in the investment market and earn more steadily.