Skip to main content

Posts

Showing posts from 2017

Lesson 10: Stop Loss

The markets are a game of probability. This means that everyone will be wrong sometimes. When a trade does go wrong, there are only two options: to accept the loss and liquidate your position, or go down with the ship. This is why using stop orders is so important.  It’s all about the exit. The sell point actually determines the final outcome of an investment. Even savvy investors have a difficult time deciding when to sell. Many traders take profits quickly but also hold on to losing trades - it's simply human nature. We take profits because it feels good and we try to hide from the discomfort of defeat. We may get nervous and sell a winner too soon — or hold losers far too long.

Some set “mental” stops and then fail to execute them. Others use trailing stops only to find themselves “whipsawed” out of a stock just before it takes off for a big gain. A good exit strategy applied consistently lets profits run while providing downside protection to minimize losses. A properly…