Do You Use Stop Loss Limits?

Many short, medium or long-term investors use stop loss limits to limit their loss will also maximising their profits. Do you use stop loss limits?

 

To my mind, stop loss limits are necessary. You need to know where you will close your position unless you are going to hold it forever. These limits should defined before entering the position as a part of trading plan to avoid the influence of psychology.
In general, stop loss should be placed at the scenario cancellation level - particular level important for the instruments. At the same time, sometimes it would be better to use mental stops instead of placing real orders to avoid stopping out by price skipe during the short period of high volatility.

 

Personally I think that stop loss limits are a great way to maximise returns while reducing losses. If you are lucky enough to have a share which is rising significantly, constantly increasing your stop loss limit will ensure that you lock in a significant percentage of the upside. However, for this to work you have to be methodical and strip out emotion from your decisions.

 

When you get to a level where you are making a decent profit simply keep increasing your stop loss to 10% below the share price and sell on a fall back. Some people would say 10% is too tight and a short term sell off could prompt a sale and then the price bounces back. What would I say? The only price you know is that today, not tomorrow.