What is the purpose of stop loss?
It is through Stop loss that you set a limit to hedge against major losses in a stock and break out of negative trends. Some of the theory behind this is that you should not fight the trend. Trends have the habit of reinforcing themselves, and it is then about getting out of a negative trend as soon as possible and following the good trend as long as possible. The purpose is to lose as little money as possible, and therefore must be consistent when a stock falls below stop loss. No matter how much faith one has in the company, the stock should be sold.
If you buy a lot of shares, you should definitely know about the Stop Loss method.
There is no way to stop the limit. Some do it at support levels in technical analysis, others do it at levels they feel they don’t want to lose more money, while others consistently use a percentage in relation to the purchase price.
When it comes to setting stop loss limits, it may be appropriate to distinguish between high volatility stocks and those with low volatility. Shares with high volatility may advantageously have a slightly lower stop loss, as the price fluctuates more. However, this is up to each one.
How to set the correct stop loss limit?
It may also be appropriate to have a time interval at the stop loss limits. For example, every three months you go through stop loss limits. Initially, stop loss should not hedge against market declines, but company-specific falls. Although it will secure against market declines as well.
Different types of stop loss
The most common stop loss limit is one-way stop loss, where you sell when a stock reaches a certain point down. But many also have a point they sell at after a certain gain.
Another common variant is moving stop loss, where the stop loss limit follows the peaks of the stock price. This means that if you have a stop loss limit of 10%, the stock price today is 100 (selling at 90). The price then rises to 110. In this case, the new stop loss limit will be 99
It is just the imagination that stops the opportunities you have with stop loss, but the most important thing is that you as an investor follow your own limits, or the stop loss limits that your adviser provides. Most often, stop loss limits are important in the strategy provided by the advisor.
Read more about Buying Shares? Advice for Short-Term Stock Speculators – Anyone who buys shares is looking to earn the most in the shortest possible time, …
- Some Tips and Tips on Stocks – Here are some great tips on Stocks you shouldn’t miss. Mostly intended for …
- All about Annuity Loans – Annuity Loans is a loan where the borrower pays a periodic fixed amount, annuity or …