Stop Losses

Stop Losses

Profitable investing requires selling!

Stop Loss takes emotion out of trading decisions.

Profitable investing requires selling!

That’s right profitable investing requires selling because unless you sell a stock, fund or ETF, a profit is never realized.

Yes on paper it may be worth more than it was when you bought it, but until you actually sell the fund, stock, or ETF there is no real profit.

So one of the fundamentals you should remember is:  Since almost every stock, ETF, or fund goes down at some time, it is essential that when you buy an ETF, fund, or stock you also acknowledge that at some point you are going to sell it.

A principle of safe investing is to set STOPS. (a STOP is an indicator for when a position should be sold; this can be either percentage based or a fixed amount, both relate to a previous price.)

By setting stops you protect your accounts from dramatic losses and ensure that you will make a profit when a position, (a POSITION is a term applied to a stock, ETF, or Fund that you currently own) even if it’s your favorite stock, starts to go down.  Without stops you leave yourself open to dramatic losses – like many people experienced during the recession of 2007-2008

This means that somehow – whether it’s with:   your online broker, your over-the-phone broker,  or via your investment software  you are going to say “When this stock, fund or ETF drops X percentage or to this X dollar amount I am going to sell.”

A stop loss is used to trigger a “sell” when the stock, fund, of EFT drops below a certain price or percentage in the market and is sold at the next available price. (This is called a stop loss order.)

It is very important to have a stop loss.  A stop loss let’s you controls losses and gains.  The stop loss is an easy automated way for an individual who can’t supervise their portfolio every second to simplify the trade process and to limit losses to their portfolio because you have limited the amount of money you can lose with a stop loss.

Only you can decide how much loss you are willing to accept when a stock, ETF, or fund goes down in price.  It is so very important to have a clear stop loss limit set to protect your portfolio.

Here are some examples of a stop loss (order)

Example of a Percentage Based Stop Loss:

You have XXX fund, stock or ETF that you purchased at $XX so you are settting a stop loss at XX%.

Example of a Fixed Amount Based Stop Loss:

You have XXX fund, stock or ETF that you purchased at $XX so you are setting a stop loss at X dollar amount. 

Book: Invest Safely and Profitably

Investing Made Easy – Your road map for safe profitable investing in less than 30 minutes a week.

By Raymond M.F. Dominick

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