One of the biggest traits that set apart winning and losing traders is discipline. The discipline to cut losses, the discipline to commit to the same daily routine every day, and especially, the discipline to stick their stop losses.
Many traders go into trades with good intentions. They see a setup forming and they come up with an entry price, a stop loss, and maybe even a profit target. But once they’re in the trade, their mind starts playing tricks on them and they move their orders around.
They watch the stock move with a bias now and can no longer view the price action objectively. Whether it’s a scared trader who closes trades way before they hit his stop loss at the first sight of a red candle, or the masochist trader who rationalizes his way into moving his stop loss to stay in the trade.
You should be entering a stop loss at the same time as you place your entry order. Psychologically, it’s more difficult to cancel your stop loss, because you know it’s wrong. When you have a mental stop, it’s easier for you to come up with excuses to let the market trade past it.
Having a stop order in place will also save you from catastrophic events where the stock trades quickly against you.