Vikram had a rule he repeated to every new trader he met: “Always use a stop-loss.” He said it in the tone of a man handing down commandments from a mountain.
What he did not mention was that he had never actually used one himself. He kept it in his head, which he called a “mental stop-loss.” Mental stop-losses, like New Year resolutions and gym memberships, work extremely well as long as nobody tests them.
On Monday he bought shares of a mid-sized company at ₹240. His mental stop-loss was ₹228. “If it goes there, I will exit,” he told his wife Neha, who was folding laundry and had learned to nod without hearing.
On Tuesday the stock fell to ₹235. “It is a small dip,” said Vikram. “Healthy.” On Wednesday it fell to ₹229. “It has not touched my level,” he said. “Discipline.”
On Thursday it fell to ₹226. Vikram stared at the number for some time. It was below the stop-loss. A man of principle would sell. But another voice in his head, the voice that wears a nice shirt and talks like a salesman, whispered: “What if it is just a wick?”
“A wick,” Vikram repeated aloud, and Neha looked up from the laundry.
“A what?”
“It might bounce. The chart looks good. It is oversold.”
“Is that a technical term?”
“It is a feeling,” admitted Vikram.
The stock reached ₹208 on Friday. Vikram told himself that the stop-loss had moved. “New stop-loss, ₹200. The first one was too tight.” On Saturday he spent three hours reading about patience, and by evening he had decided that the lowest price of the day was a very good sign.
On Monday the stock hit ₹198. Vikram sold in a panic at ₹197, losing nearly eighteen per cent of his money, and spent the evening quietly looking out of the window.
Neha brought him a cup of tea and sat beside him. “Do you know why I never buy anything big without waiting a day?” she asked.
“Why?”
“Because I have a stop-loss too. Mine is called Your Mother-in-Law. It has never failed.”
Vikram laughed for the first time in a week. “Does it have a trailing option?”
“It has a trailing voice,” said Neha. “Drink your tea.”
The next morning Vikram opened his trading app and, for the first time in his life, placed a real stop-loss order. It felt strange, like wearing a seat belt in a parked car. But the car, he discovered, was safer.