The Stock Markets are unique and full of uncertainty. In real-time the markets are complex, but after the fact everything looks simple. It’s this dichotomy that tricks many into thinking that there is easy money in the stock market. That’s where Stop Loss comes in.
As an investor or a trader you can hope for a stock to go up or down, but you can’t control it. Stock market is a collective reflection of thousands and millions of participants and no single entity has any control over it. You are dealing with geopolitical, environmental, financial, technical, human and many other uncontrollable factors every single day.
You control the following:
- Which stock to buy?
- When to buy and quantity?
- What price?
- When to sell?
Almost everyone is good at the first three steps. It’s the “when to sell” that’s hardest in the stock market. If the stock has moved in your desired direction then selling is somewhat easy.
So, lets focus on when the stock has moved in the opposite direction and there is a loss. Many of us are reluctant to sell and close the position when there is a loss. Even if it’s is a small loss, it’s against the human nature to accept defeat. Often times a small loss turns into a major setback – both emotionally and financially.
The problem is the missing Stop Loss strategy in investing. Solution is right in front of us but we don’t use it.
Winners use Stop Loss.