What is loss cutting? Three rules and practices to protect your assets

[Summary]

Loss cutting is the act of selling to limit losses. By following rules rather than emotions, you can prevent a large loss of assets. In this article, we will explain the basics, specific rules, and how to use stop loss in practice.

What is stop loss?

Conclusion: Essential actions to control losses

One word explanation

Loss cutting = Stopping damage by selling at a certain loss

Detailed explanation

It is not possible to "reduce loss to zero" in investing. However, the amount of loss is controllable.

Why is stop loss important?

Conclusion: The only way to prevent major losses

Example (difficulty in asset recovery)

essence

• The greater the loss, the more difficult it is to recover.
• It is important to lose small and survive for a long time.

Rule 1: Decide your stop-loss line in advance

Conclusion: Decide how to lose before buying

One word explanation

Stop-loss line = standard of selling price

Guideline

• -5% to -10% (short term)
• -10% to -20% (medium to long term)

points

• Set before entry
• cannot be changed later

Rule 2: Cut your losses for a reason

Conclusion: Sell if not only the price but also the assumptions collapse

example

• Deterioration of performance
• Growth story collapses
• Changes in the competitive environment

practical work

Withdraw when “why you bought it” is no longer clear

Rule 3: Manage your positions

Conclusion: Reduce your one-time loss

One word explanation

Position = percentage of investment amount

Specific example

• 1 stock: 5-10% of assets
• High risk: even smaller

effect

• Prevent fatal injuries even if you lose consecutively

common mistakes

• Leave it alone and say, “I’ll come back someday.”
• Additional investment to recover losses
• Not following stop-loss rules

Balance between stop loss and profit taking

Conclusion: Aim for small losses and large profits

One word explanation

Small loss, large profit = small loss, big win

example

• Loss: -5%
• Profit: +15%

→ likely to be positive in the long term

How to use it in practice

Conclusion: Systematization is the most important

method

• Use a stop order
• Note investment rules
• Review regularly

Summary

• Loss cutting = action to protect assets
• Do things based on rules, not emotions.
• It is important to keep losses small

action steps

• ① Set the stop loss line in advance
• ② Clarify the reason for investment
• ③ Thoroughly enforce automatic ordering