In Share Market Trading, no one holds a crystal ball. The price of shares can go down, likewise up. What’s wanted is an exit scheme that’ll enable you to endure the bad stocks, and attain a good profit on the good stocks. The technique that works the best is a trailing stop loss. A stop loss is an order for your stock broker to sell your stocks if the price drops to the level that you’ve assigned. There are 2 ways to do it. The easiest technique is to determine on how much you’re amenable to lose as a percentage of your investment. The fair rule is not less than 10%. Calculate the price of the stock at this level and assign that as your stop loss.
While the price of the shares grows, keep going the level of the stop up to hold the percentage gap the same. A few brokers offer a trailing stop loss service, in which you tell them what percentage to set the loss at and they act accordingly. The other technique is a bit more complex, and comes from Nicolas Darvas in his book “How I made $2,000,000 in the Share Market”. The Stock market tend to flow in stages. a share on the rise will achieve an apex, and then drop back down. This might happen several times at each stage. The idea is to abide by the chart of the shares and check where the drops are the lowest, and set the stop loss just under them.
The other part which Nicolas propounds is that once the shares breaks out of the sideways trend, to buy more of the shares, and once the shares begin going sideways once again to move the stop loss up once again to just below the lowest part of the drop. Employing the stop loss as an exit scheme, simply works if you adhere it, and not lower it, believing that the price will arise again in a a couple of days. In some cases you’ll be correct, but what generally happens is the price keeps propelling against you, and you loose even more money. For a secondary to this, the money still tied down in the 1st stock that’s dropping cannot be employed on some other trade. In conclusion, a word of cautionary about applying the stop loss scheme is to protect your capital.
There are moments when the share market experiences a fast collapse in price, there are regulations about how far a price can cave in in 1 day. If it dips this maximum distance, it can bypass your stop loss, and you may be not able to sell. Though these situations are rare, it’s best that you recognize about them. And so, they’re not a shock once they do happen to you. Getting help from a reputed Stock Tips providing company is highly recommended in this case.
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