Managing your risk is one of the keys o being profitable trading in the stock market. There are plenty of techniques to use in order to reduce your risk, and the use of stop loss orders may be the easiest. In this short tutorial on stock trading we will attempt to examine the proper use of the stop order as well as the mechanics of implementing it. This may be the simplest stock trading tactic that you ever learn to help reduce your down side.
When you enter a stock position you should already know how much you are willing to lose if the trade goes against you. Even the most skilled traders on Wall Street will have a percentage of trades that do not pan out. Learning how to keep those small losses from turning into a portfolio burying black eye, will save you both money and heartache. Having a stock in your portfolio that you are only holding on to because you hope it will “get back to even” is a recipe for failure.
The most common use of a stop order is to set up a price that you will sell the stock assuming the stock price drops. An example would be to set your stop order at $28.95 on a stock that you purchased for $30.25. This would limit your loss to $1.30 per share. Consistently setting a stop order as soon as you purchase a stock will help control the emotional involvement with the trade. Once you set the stop order you just have to worry about when to sell if the price goes up.
Everything you can do to make your stock trading based on logic and analysis rather than emotion or rationalization will improve your chances at success. If you can add this one simple step to the process of your stock trading routine you will be heading down that path. Find more stock trading hints at stocktradingtutorial.org
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