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 that 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.
Here are basic steps that you have control over in the stock market:
- Which stock to buy?
- When to buy and quantity?
- What price?
- When to sell?
Mostly people can answer the first questions with some confidence. 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.
A stop loss strategy addresses this problem. When you buy a stock knowing how much you want to risk, you have accepted the consequences. You can place a stop loss order and take control of your stock position.
Winners use Stop Loss.