Stocks Stop Sell
Stocks Stop Sell
Reasons To Use A Stop Loss On Each and Every Trade
Have you ever heard the term “stop loss?” Do you wonder what it means? Do you want to know how to benefit from it? Here is a brief overview of this important concept that you must use to protect yourself in the stock market.
We all know that the aim of investing in stocks is to make profits. But how many of us are ready to face loss when the things don’t go our way? How do we know how much loss we should bear? Well, this is determined by the stop loss. It is the price below which you immediately sell off the stock. It indicates the maximum loss you can bear in the market.
The concept of stop loss is much more crucial for the traders than investors. This is because traders tend to buy and sell at short notice. At times, this transaction can take place within seconds. Now markets tend to be very volatile during the short term. The chances of suffering losses are higher in the short term than in the long term. Hence it is essential for all the traders to adhere to the principle of stop loss strictly.
Here is how it works. You buy shares of RIL at Rs 1000 and have set a target price of Rs 1200. You set the stop loss to Rs 975. This means you can bear a loss of Rs 25. Now if the price of the stock starts declining, and reaches Rs 975, your broker will immediately sell off your stock. This will protect you from suffering any further losses.
Now some traders continue to hold on to their investments with the hope that the markets will recover, and they will then earn profits. But this is not true. It is not know how long the markets will continue to remain in the state or decline. The markets may take some time to recover. But in the meantime, you continue to lose your money. This is a big mistake and hence should be avoided. Capital protection should be your chief priority over making profits. (Find out about Forexyard Forex Trading Platform. Also make sure to visit Instaforex Forex Trading Platform.)
Many investors become emotional when they invest in the stocks. Never be emotional. It is essential to cut your losses as soon as possible. Remember, longer you keep on holding on to the stock, more you will need to earn to recover the loss. A smart investor never becomes emotional. He knows that if the stock price has breached the stop loss, there is no sense to hold on to the stock. He then immediately sells it off. You too should do the same.
The level of stop loss should be based your risk appetite. You need to decide how much loss you can easily bear. Based on that, you need to set your stop loss. Normally, stop loss is decided as a certain percentage of your capital investment. E.g. a stop loss of 20% means you can withstand a loss of Rs 20 on the investment of Rs 100. Once the stock price goes below Rs 80, you should sell the stock.
Stop loss is a very important tool to prevent losses in trading. So use it wisely and well.
Stocks: Not Too Late To Sell
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