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The stop loss point

When we embark on something, we are naturally optimistic that it will work out as we expect it to. Sure, we understand that it might not. But, we hope that it will and we plan our actions accordingly.

However, once we are on the road and come across hurdles, we tend to fall trap to the sunk cost fallacy and continue to evaluate the effort it takes to overcome the next hurdle that we see to clear our path. And before we know it, all we have been doing is clearing hurdles with no clear sight of the destination we originally set out to. And we aren't even certain if we are still on the right track.

But we hope.

I've realized that there are two important points in the path that we need to identify before we even take the first step towards the destination.

The first is the point of no return. Once we start on the path and reach a certain distance, there is simply no turning back as that ceases to be an option. Success or failure, we have got to move forward. A classic example of this is when I was at a small town in the French riviera called Eze village. The town is on top of a small hill and sometime in the evening, my friend and I started hiking down the hill through a forest with a vague idea that if we keep climbing down, we should come to the coast at the bottom of the hill. And we could get a bus back to Nice from there. But, we had no idea whether there was even a path down through the forest to the coast. After an hour and a half of walking, we were at a point of no return. The sun was about to set and we wouldn't be able to walk back without light. So, our only way was forward and out of the forest, irrespective of whether it lead us to the coast and the bus stop or not. We couldn't turn back.

The second and more important point is one where we call it quits. Once we start on the path and come across certain difficulties, unless we have defined beforehand as to what conditions we will quit under, we tend to fall prey to the sunk cost fallacy and make rash and poor decisions that puts us further in trouble. A classic example of this is the stop loss on stock trades. Day traders indicate a stop loss on their trades, which is a price point when an automatic sell action is triggered for the stocks they hold. For instance, if they've bought shares of a company at $100 and have a stop loss at $90, they sell the moment the stock hits $90. They don't want to risk losing any further.

We need to know the stop loss point and the point of no return for everything that we do. Not knowing the point of no return means that we can venture so far forward and realize later that we are trapped and have lost the option of going back. And not knowing the stop loss point means that we can spend a lot of time and energy clearing hurdles that will eventually get us nowhere.

Both consequences are disastrous and can be avoided. Only if we determine what the stop loss point and the point of no return are before we set out. 

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