A stop loss is an order that you give your broker to "stop losses" ("stop-loss").
The golden rule of stock market speculation is to always keep risk under control. To do this, you have to know how much you are willing to lose before buying your shares.
Once you know or decide that figure, you will give an order to your broker to open the position.
Also, immediately after giving the buy order, you must leave a stop loss, which is a sell order that will only be executed if the price falls enough to cause you your maximum allowable loss. In which case, your shares will be sold before suffering greater evils.
You should know that the orders that are not executed are free; So controlling the risk in your stock operations will not cost you anything, but it will save you a lot of trouble.
Trading without a stop loss is like driving a car without brakes. Always use a stop loss.
One of my mistakes was (and sometimes still is) is to think that there is a technique to stop. After experimenting with thousands of trades, or is there a better stop technique than the money you are willing to lose without losing sleep or your capital. It may be a 3: 1, 15: 1, 1: 1 ratio, whatever it is… .. or whatever% it is… 10% 50% 20%, but always having a stop according to each operation I carry out is the key.
EXAMPLE
Assume that the dividend yield on a company's stock is 8%. They are definitely worth buying.
But by pure statistical noise, the value drops 5%. It can happen, for example, because some wealthy heirs decide one day to sell a lot of shares. The first stop-loss is activated, which makes the price fall ... which causes more stop-loss to be activated ... thus the price falls further. In other words, a cascade of stop-loss activations and a plummet of the market value is triggered. Until someone sees that the dividend yield is 40% and you have to take advantage to buy.
In other words, stop losses do nothing more than amplify the normal statistical noise of the market value. They can't be applied blindly without looking at the fundamentals
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My mistake was to move the stop to the point of equilibrium when I had a certain% in favor, the action towards a breather, and I was removed to continue the direction it was taking. This is why I closed many trades at 0 or with little profit. It is clear that he was afraid of losing. I stopped doing it and the profits began to arrive without my intervention. For me, the holy grail is to control losses, either with a stop of a specific% or a technical stop whenever the options allow it. "Take care of your losses that the gains take care of themselves." By a probability of a trading system, there will be more winning trades than losers, so the key is to respect the stop no matter what happens and let the profits reach their target. Repeating this over and over every day without exception and without adding more variables will make you profitable in trading. It sounds simple, but it is not easy to do it because we put the spoon in with our emotions. Thanks for sharing!
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