Stock Trading Tip – Use a Stop Loss
You ought to use stop loss orders. They will save you from catastrophic damage to your account…The kind of damage that will make it impossible to recover your principal and your confidence.
Every book you real about stock trading will recommend that you use a stop loss order. All the successful traders don’t have a 100% win record. They have many trades that lose money. But they say if you manage your money well, you can still end up with a gain in your trading account even if 70% of your trades are wrong.
No trade is a sure thing no matter how sophisticated the analysis, methodology used or overwhelmingly positive reports in selecting stocks. Stocks move unpredictably at times and a stop loss will get you out when it goes against you.
When you use a stop loss on each of your trades and they are triggered, you minimized the losses to your account and preserve what remains for another trade — a trade that may gain enough to make up for all the little loses.
They say it’s easier to recover from a small lost than a big lost. So experts recommend taking small loses quickly. If you bought a stock at $100 per share and get stop out at $90 you lost $10 or 10%. You’ll only need to find another stock that gains 11% to recover from your previous loses.
If you get out of your $100 per share stock when it falls to $50, you lose $50 or 50%. You’ll need to find another stock that gains 100% to fully recover. But finding stocks that give 100% + returns are rare.
Taking a lost is difficult. We don’t like to admit defeat and our ego always thinks we’re right. But the market is telling us otherwise and we should follow rather than try to lead. Placing a stop loss for all stock trades and accepting those small loses — actually celebrating them like you would if you had made a profit — will help you quickly regain your focus on finding new trades were a real winner comes along.
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Copyright c Leroy Chan
Tags: Stock, Trading
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