There are many different strategies to use to protect your capital but stop loss limits seem to be one of the most popular. In effect this takes away any decision once a stock hits a particular level and, if the strategy is followed, you simply hit the button and sell. So, do stop loss limits work? Read full article
One thing to be aware of with stops is that if a stock has a big gap up or down due to a big overnight jump or drop in a stock, a stop may miss the opportunity to work the way it is supposed to. A stop may also fail in those rare circumstances when there is a lack of liquidity in a particular market or security - hard to sell when there are no buyers, etc. Just something to be mindful of.
I totally agree, however overall for those looking to protect their capital, stop loss limits can be extremely helpful. They take away the “emotion” of deciding as and when to sell a share. Well, that’s the theory!
Stop loss orders are designed to limit the amount of money that is lost on a single trade, by exiting the trade if a specific price is reached.
If you are trading frequently and on small margins then stop loss limits can be useful. There are times I wished I had used stop loss limits in the past!
I use SL "mentally" but I don't stay in long enough to worry + I move them up as the stock move so I save guard my profit my way any way
Many successful investors move their stop-loss limits higher and higher as the underlying share prices move. There may be situations where you bank a profit "too soon" on a short-term correction but at the end of the day, a profit is a profit.
