Why STOP LOSS is important for Trading & Investment?
One of the most Important part of Trading & Investments is Risk Management by Applying proper Stop Loss To Trade.
A Wrong Trade should NEVER be converted to an Investment Trade By Saying I can wait in Stock market for many years.I would hold stock till my prices comes.Its my Fund which I dont need for many years.
Case Study – RCom ( Reliance Communication)
The stock hit a Life high of 790 on 7th Jan 2008.
8th Jan 2008 is the History. RPower listed on the exchanges and the Markets Collapsed.
10th April 2008 – RCom at 484 and started a corrective up move.
If someone had entered close to 500, they should have kept a Trading Stop of 450 and an Investment Stop Loss of 425
RCom reached 585 in May 2008. Traders should have booked partial profits and MSL (Modified Stop Loss to Cost of say 500)
Investors should have capped Stop Loss at 470
The stock RCom continued it’s downtrend and broke 500 (Traders should have Exited), broke 470 (Investors should have Exited), broke 390 (Die hard Investors should have Exited).
When a Trade has gone wrong EXIT with digestible loss is the BEST option.
Averaging & Hoping and Praying, won’t help.Take Action As & When Required.
RCom hits a multi year Low of Rs.1.50 Recently.
Look at the Capital Erosion the stock would have caused for those holding and hoping. EVEN FIXED DEPOSIT GIVES 100% RETURNS IN 7 TO 8 YEARS.
#A Trader or Investor should play by the Rules strictly#
Investors too should have a honourable Loss Exit in place in any Investment.
If One breaks the rules, the Markets will punish them very badly.Always have Disciplined Investing.
FOLLOW STRICT STOPLOSS IN ALL TRADING BETS OR EVEN INVESTMENT BETS AS PER INDIVIDUAL RISK.
DONT ALL ANY OF YOUR PROFIT TRADE TO CONVERT INTO LOSS TRADE.
Disc – All views expressed are personal and for Educational and study purpose only. Consult your financial advisor before investing or taking any position based on above article.