A quick word about stop loss orders. One of the very basic tools that can help you in your investment strategy is aÂ stop-loss orders.Â These areÂ sales orders conditionedÂ to a particular event, generally a fall in the share price.Â So, for example, we buy a certain stock,Â but at the same time we give orders that if the share price falls more than 5%, the stock will automatically be sold.
The usefulness of these orders is clear a priori.Â They serve to hedge our bets and protect our downside. TheyÂ help us to limit losses.Â This is a method recommended by most analysts…but not all.
One rationale is thatÂ stop-loss orders can avoid a higher gain.Â Sometimes the markets take a little breath before continuing the bullish path.Â And in that respite, aÂ stop-loss order was triggered. Stock movements are not always predictable and they do not always increase steadily. There may be moments of flat or declining growth. This could last a few hours, days, weeks, or even months. However, a stop loss order doesn’t take this into account.
It all comes down to your risk profile.Â Stop-loss helps those with a safer profile avoid large losses.Â Taking greater risks, however, could potentially result in larger gains.