Posted on October 16, 2009 - by Createwealth8888

Portfolio Management – Stop Losses?

Photo by brainware3000

http://createwealth8888.blogspot.com/2009/10/portfolio-management-price-volatilty.html

What is Stop Loss?

Setting a stop-loss for x% below the price you paid for the stock will limit your loss to x%. This strategy allows investors to determine their loss limit in advance, preventing emotional decision-making.

What are the Guru’s recommendation of Stop Loss?

Alexander Elder strongly believes in (the 2% and 6% rules).

William O’Neil: Whenever a stock is bought, a tight stop loss of 7-8% is set below the purchase price. No matter what the reason for the decline, each stock should be sold without hesitation if it drops down to or below this limit.

Many traders and active investors follow closely the classic text book and Guru’s advice and follow strict stop loss strategy. But, unfortunately I am a DUMMY and I don’t use STOP LOSS.

I do CUT LOSS. But, CUT LOSS is different from STOP LOSS. STOP LOSS means when price of your stock that you have purchased falls and hits your STOP Loss level, you sell it.

I do cut losses to recover capital and redeploy the recovered capital to other stocks, but it is not related to the falling stock price. I don’t need to win back in the same manner that I have lost.

One day in 2008, a guy came to this cbox and said: “Bro, do you have stop loss and you are holding a losing position for too long!” Read more…

Related posts:

1. When stop loss order fails
2. Portfolio Management – Price Volatilty
3. Portfolio Management – Growing Money Tree