Every experienced trader has a story about the one trade that got away from them - the loss that was supposed to be small but became catastrophic because they ignored their stop loss. Ignoring stops is one of the most common and costly mistakes traders make, and understanding why we do it is the first step to stopping.
What Is a Stop Loss and Why Does It Matter?
A stop loss is a predetermined price at which you will exit a losing trade. It defines your maximum acceptable loss before you enter the trade. Without a stop loss, you are essentially saying "I am willing to lose everything on this trade."
The purpose of a stop loss: It is not about being right or wrong. It is about surviving to trade another day. One unlimited loss can destroy years of trading gains.
Why Traders Ignore Stop Losses
Loss Aversion
Psychologically, taking a loss hurts twice as much as an equivalent gain feels good. Our brains are wired to avoid realizing losses at almost any cost. A stop loss represents the moment we must admit we were wrong and accept pain.
Hope and Denial
As a trade moves against us, we tell ourselves stories: "It will come back." "It is just temporary." "The market is wrong." These narratives allow us to justify staying in a losing position past our stop.
Ego and Identity
Many traders tie their self-worth to being right. Hitting a stop loss means admitting you were wrong about the trade. For some, this feels like a personal failure rather than a normal cost of doing business.
The "Just This Once" Mentality
Traders often think: "I will skip my stop just this one time because this situation is different." But there is always a reason to make an exception, and exceptions become habits.
The True Cost of Ignoring Stops
A Real Scenario
Trader enters a stock at $100 with a planned stop at $97 (3% risk).
Stock drops to $97. Trader thinks "It will bounce" and holds.
Stock drops to $94. Trader thinks "Too late to sell now, might as well hold."
Stock drops to $85. Trader finally exits at 15% loss instead of 3%.
Result: A manageable $300 loss on a $10,000 position became a $1,500 loss - 5x larger.
The Drawdown Math
- A 3% loss requires a 3.1% gain to recover
- A 10% loss requires an 11.1% gain to recover
- A 20% loss requires a 25% gain to recover
- A 50% loss requires a 100% gain to recover
The larger the loss, the exponentially harder recovery becomes.
Common Excuses (And Why They Are Wrong)
"The market is manipulating the price to hit stops"
While stop hunting does exist in some markets, it does not mean your stop was wrong. If your stop was hit, the market went against your thesis. Period. Holding through would have resulted in larger losses more often than not.
"My analysis says it should go up"
Your analysis is an opinion. The price is a fact. When they disagree, the price is always right. Markets can stay irrational longer than you can stay solvent.
"I will just wait for it to come back"
Some stocks never come back. Others take years. The opportunity cost of holding a loser is enormous - that capital could be working in a winning trade instead.
How to Actually Honor Your Stops
1. Use Hard Stops (Not Mental Stops)
Enter your stop loss order as soon as you enter the trade. A mental stop requires you to make a decision under stress - the exact situation where our psychology fails us. Let the broker execute automatically.
2. Use Bracket Orders
Many brokers offer bracket orders that automatically place your stop loss and profit target when your entry is filled. This removes the temptation to "manage" the trade emotionally.
3. Set It and Step Away
After entering a trade with your stop in place, consider stepping away from the screen. Watching every tick increases emotional involvement and the temptation to interfere.
4. Reframe What Stops Mean
A stop loss is not a failure - it is your trading plan working exactly as designed. Small losses are the cost of doing business, like inventory costs for a retailer. They are expected and acceptable.
5. Review Your Stopped Trades
Track what happens after you are stopped out. You will likely find that more often than not, the trade would have gotten worse, not better. This builds confidence in your stops.
The Danger of Moving Stops
Moving your stop further away to "give the trade more room" is the same as ignoring it. If your original analysis said $97 invalidates the trade, $95 does not magically make it valid again.
Setting Proper Stop Losses
A good stop loss is:
- Technical: Placed at a level where your trade thesis is invalidated
- Reasonable: Not so tight that normal volatility triggers it
- Affordable: The dollar risk fits within your position sizing rules
- Definite: Not vague or dependent on "how it feels"
Track Your Stop Loss Discipline
Pro Trader Dashboard shows you whether you are honoring your stops or letting losers run. Identify patterns in your discipline.
Summary
Ignoring stop losses is one of the most expensive mistakes a trader can make. We do it because of loss aversion, hope, ego, and the "just this once" mentality. The true cost compounds quickly as small planned losses become large unplanned ones. Combat this by using hard stops instead of mental stops, employing bracket orders, stepping away after entry, reframing what stops mean, and reviewing your stopped trades. Remember: the goal of trading is to survive first and profit second. A stop loss is your survival mechanism.
Learn more: stop loss placement strategies and how to set stop loss levels.