Let’s hear from Vahid Motaghi about Stop Loss
- January 15, 2022
(What is the stop loss or stop loss in the stock market?)
Professional traders, when entering a stock, consider two limits for withdrawing from the stock: the profit margin and the loss limit. When the price reaches any of these limits, the trader sells and leaves the stock. The profit margin is the range that the trader considers to identify the profit, and the loss limit in the stock market (or stop loss) is the range that has been specified to prevent further losses.
For example, the trader with his analytical tools comes to the conclusion that he will buy a share at a price of 1000 Tomans. Using the same analytical tools, this trader considers the range of 1500 Tomans as a profit limit, and if the share price grows and reaches this range, he sells the share at the same price and reaches a 50% profit. But if for any reason the share price goes down and reaches, for example, the range of 800 Tomans (loss limit set by the trader), here too the trader sells his shares and by accepting a loss of 20%, does not allow his capital to exceed this amount. Do not decrease.
Determining the loss limit, adhering to this range and leaving the stock if the price reaches the loss limit range, is one of the most important behaviors to stay in the financial markets. There are many components that affect stock prices and financial markets, and it is practically impossible to predict all of these components. Considering the loss limit is in fact a precautionary tool that the trader must consider in his trades in order to be able to largely control the risk of unpredictable components (such as political changes, global price changes for commodities such as oil and steel, bank interest rate changes, etc.). Slowly
(According to Vahid Motaghi, the loss limit is equal to the seat belt in the transaction)
Stop loss or stop loss in the stock market is like a seat belt. Just as we must fasten our seatbelts while driving to avoid serious injury in the event of an accident, so must we consider the loss limit when trading on the stock exchange so that if our stock enters a downtrend, our capital will be safe from serious injury. If we always have this comparison in mind, it means that we have a good understanding of the concept of loss limit. In this article, we want to become more familiar with this concept and while examining the importance of preventing losses, we will review the methods of considering the loss limit or stop loss.
(What is the loss limit in the stock market or stop loss? 10 basic points to determine the loss limit)
There is no general rule for determining the extent of a loss. But to determine this limit, there are significant points to consider. For example, the following can be mentioned:
Loss limit or stop loss limit means that when the stock price falls to a specified level, we must sell it to avoid further losses.
Decreasing profits is also a loss, so when the stock price rises, the loss should be increased in proportion to the price.
One of the most common mistakes is to change the loss limit for no technical or logical reason. Thus, as the price approaches the loss level, the trader changes or eliminates it and waits for the loss to decrease or disappear. Although in some cases this move may compensate or reduce losses, in the long run it will only result in the destruction of the investment plan and strategy.
The loss limit should not be more than 10% of the purchase amount and this means that you should not lose more than 10% of your purchase amount.
You should not set the limit too far or too short from the purchase price.
If the market trend and index is bullish, after defining the profit limit without selling the share, we only define the limit. But if the market trend is down and the index is improving, we should either withdraw completely from the stock after reaching the profit limit, or sell part of the stock with a profit and for the rest, the trailing stop Consider.
The time perspective of an investor is very important in determining the loss limit. For example, setting a limit for short-term trades is different from setting a limit for long-term trades.
In short-term trading, place the breakout at the previous low. (Provided it is between 8 and 10 percent.)
In medium and long term purchases, set the loss limit on a valid support range. (Between 10 and 20% lower than the purchase price)
When the resistance of a stock breaks and the stock price stabilizes above the resistance range, set the limit on the broken resistance which now acts as a support.