Make Sure To Use Stop Loss

By Author: Money Classic Research
Total Articles: 35
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This is post will help you in understanding the benefit of the use of stop loss. There are many traders, who do not feel the necessity of using stop loss but the technical analysts always recommend using stop loss as this tool is beneficial in generating best intraday tips.
First let us understand what is stop loss?
Stop Loss
Stop loss is an order placed with a technical analyst to buy or sell when the stock reaches at certain price. In the language of novice traders, a stop loss is created to limit the trader’s loss on a security position. Usually, the technical analysts set the stop loss order below 10 percent at which the traders have bought the stock. By doing this, they limit the loss to 10%.
Example to understand Stop Loss
Let us understand the term with the help of example. Suppose you have brought a share of Infosys at the rate of $ 10. As soon as you bought the stock, you have set the stop loss order of $ 8. This means, whenever the stock falls below $8, you will have to sell your existing stock at existing market price. In order to generate the intraday tips, you must essentially apply ...
... stop loss order.
Advantage of Stop Loss
As promised in the first paragraph that you will learn the advantages of use of Stop Loss, here are some of the benefits that can be availed by using stop loss. The advantage of a stop loss order is that you do not need to watch how a stock is performing on a daily basis. Hence, if you have got some work or you are on vacation then it becomes handy as prevents you from watching your stocks for an extended period of time and thus you can generate accurate free intraday tips.
However, as the coin has two sides, similarly there are certain disadvantages of using stop loss. The disadvantage of using stop loss is that the stop price could be activated by a short-term fluctuation in the prices of stock. Hence, the important factor is to find a stop loss percentage, which permits the stock to vary day to day by preventing downside risk.
When you set a 5% stop loss on a stock, which has a history of fluctuating 10% or even more throughout the week is not the best strategy. You may lose your money with the implementation of this strategy. You will experience loss on the commissions that are generated from the execution of your stop loss orders.
Although you must know that there is no particular rule for the level at which stops should be placed. You can decide your own level at which stop loss must be placed according to individual investing style. For example, people in intraday trading might use 5% stop loss, while traders of long-term investment might set 15% or more stop loss. Money Classic Research is one of the best advisory firms that offers free intraday tips to their clients.