Every enterprise aims at making money efficiently by discarding the loss. So, to make money it gets critical for us to safeguard our assets. That is where the Stop-Loss strategy comes to play.
Stop-Loss strategy is the demand to the investors to trade stocks when the stocks have fetched the desired price range. It is widely used to reduce the risk factor when the market is in motion against the investor. It can be implemented to set a certain profit in the trade.
Most of the investors fall into a dilemma while deciding where to set their levels. Setting a stop loss level that is too high may lead to big losses in case the tables turn around. While on the other hand, setting levels too close can keep you back from fetching a good amount of profit as there is a greater chance of you getting kicked out of the trade sooner. So, there are a few things to keep in mind before choosing a Stop-Loss strategy.
There are numerous strategies available to evaluate the amount for each stop-loss order. Below are the three broadly used strategies discussed.
1. Percentage method: This is generally used by investors who are into trading during regular business hours. This method evolves by setting the percentage of stock expenses that the enterprise can afford to lose before exiting the trade.
2. Support method: This method is a bit complicated as compared to the percentage method. In this method, it is required to first determine the recent support level of the stock. After determining the support level it is necessary to set the stop-loss point below the support level.
3. Moving averages method: In this method, it is required to apply a moving average to the stock chart. It is advised to set the moving average for the long term. The next step follows setting the stop loss level just below the moving average level.
What if the money doesn't diversify as planned? Is there a way to invest and at the same time safeguard your portfolio? Certain trade managers who desire to stay invested during good times and also have the potential to handle loss in case tables turn around can implement the "stop-loss" strategy. A stop-loss is a trade instruction on investment at a particular price that is lower than a stock's current market price. This means the order is pending and can only be executed if or when the stock trades at or through that price. It is very important to keep in mind that stop-loss price is not guaranteed. Rather, your trade will become a market order when the stop-loss price is breached.
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