Why Use a Stop Loss
Why use a stop loss when trading stocks and shares.
A very interesting article in the Sunday Times which highlights why you always need a stop loss when trading stocks and shares on the world stock markets.
it is always very important to have a stop loss in place. Quite simply by having a stop loss you are controlling your exposure and limiting your risk. Having a stop loss is a golden rule for any one trading shares on the markets. This is so important that after opening a trade you must go back and check that the stop loss is in place and fine tuning it if required.
You can find out how to use stop losses on a Share Trading Course where you can learn many tips and techniques on this rather important point.
Why Use a Stop Loss
Simply because it will SAVE YOU MONEY as it will reduce your losses should a trade move against you.
Directly related thereto is having a strategy at which point you cut your losses. Very possibly before the stop loss has been crossed simply because the original investment strategy has changed. You can run with a loss whilst your original thesis remains in place but once that has changed then it can pay to take a small loss early on rather than a larger loss later on,
The Article below explains “Why use a Stop Loss”.
A hedge fund run by George Osborne’s best man has suffered a reversal of nearly £600m on a bet against Glencore.
The deficit for Lansdowne Partners, the Mayfair firm whose flagship fund is managed by Peter Davies, 44, a close friend of the former chancellor, is shaping up to be one of the industry’s single most disastrous bets.
At first, the wager was a big success. Davies’s fund booked an estimated paper profit of about £250m last year by “short-selling” Glencore. Short-sellers borrow stocks then immediately sell them in the expectation that the price will fall and so cost less to return, letting them pocket the difference.
Glencore had a horrific 2015. Its shares plummeted from 295p to 90p as it was caught out by its huge debts and the price collapse of several commodities. In January shares hit an all-time low of 68p, nearly 90% off the float price amid worries Glencore could be “the next Lehman”.
The company took drastic action, launching a $10bn fundraising plan. The crisis subsided and its stock price soared. The shares quadrupled this year, capped by an 18% gain last week to close at 279p.
November 13 2016, 12:01 am, The Sunday Times
Before buying or selling a trade one needs to consider the strategy.
What will happen to make the share move?
For example, results coming out in 3 months for a growing brand could signify a rise in time.
Or perhaps a business which appears to be stalling having had a profit warning hinting at a falling share price.
In each case either buying or selling the position one has to consider where the initial stop loss should be placed.
In time depending on the share price movement the stop will be adjusted accordingly.
Our Beginners Share Trading courses are for educational purposes only we do not provide investment advice.
You must always remember that trading in stocks, shares and commodities has a considerable inherent risk. The market can and does change due to circumstances beyond your control