Posted by : Neha Gupta
Stoploss. Don't we hear this word multiple times in a day, no matter which channel you're watching and who the analyst is. When we hear this all the time the question that comes to the mind is that, is placing a stoploss really necessary & if so how? So let's discuss the necessity and importance of stoploss.
My simple answer is yes! Whether you are trading in leverage or even investing in cash one must have a stoploss in every order he or she places.
Stoploss. Don't we hear this word multiple times in a day, no matter which channel you're watching and who the analyst is. When we hear this all the time the question that comes to the mind is that, is placing a stoploss really necessary & if so how? So let's discuss the necessity and importance of stoploss.
My simple answer is yes! Whether you are trading in leverage or even investing in cash one must have a stoploss in every order he or she places.
| When I started trading first, to me a stoploss was one of the most important money management tools and no matter which market you are trading the best way to grow your money is when you gain maximum returns with the expenditure of minimum time. Why would you want to keep your money locked in a stock which is falling or even going sideways when you can exit it at the stoploss with the minimum losses booked and invest it in something else where you start gaining returns right away. | |
The most common thing I have heard people saying is keep your stop losses where it doesn't hurt you to loose. I think this exactly where people go wrong. Whether you are a Fundamental Analyst or technical Analyst your system must have a stoploss strategy and it should be able to predict stoplosses along with the entry & exit levels; if it does not your system is incomplete. What the market does, is it follows certain supports & resistances, it does not depend on our pockets & how much we can afford to loose.
When you are developing a system and trying it in the market you should keep in mind that your system has to be capable of providing you with multiple targets that way you can compare your stoploss with the first target or second target and compare your risk with the expecting returns.
Further if you place a trade and the market starts moving according to your expectations you can alter the previous stoploss & place a new one, with the help of a trailing stoploss strategy. You can maximize returns using stoploss & trailing stoploss strategies but this totally depends on the tools you are using.
When you are developing a system and trying it in the market you should keep in mind that your system has to be capable of providing you with multiple targets that way you can compare your stoploss with the first target or second target and compare your risk with the expecting returns.
Further if you place a trade and the market starts moving according to your expectations you can alter the previous stoploss & place a new one, with the help of a trailing stoploss strategy. You can maximize returns using stoploss & trailing stoploss strategies but this totally depends on the tools you are using.
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