Just as there are different types of investments, there are also different types of investors. Deal with the purchase of shares is not the same thing for someone facing the stock market in a speculative manner than one who is under a border ultimately seize. Indeed, if the world is facing action from the speculative perspective, we have to take the greatest possible care, and to use the tools offered by the system.
One such tool is the stop loss. Losing is one of the risks referred to when investing in stocks, but when do we put a stop to this situation? That’s one of the main questions that investors make. As we said, in the case of long-term investors, this is not a real problem, because in the end, the market tends to focus our investments positively (not one hundred percent of the cases, but a large percentage of them).
The shortsighted not have the same mentality. You have to get the highest return in the shortest possible time. And if you have to get rid of certain actions to avoid losing money, then you must do it. The stop loss, therefore, should be a crucial tool in the context of speculative investments. How much drops are willing to accept? Do a 6, 7 or 8% would seem appropriate?
The truth is that there is no exact number to be determined by us when we give way to the stop loss on some action. Driving the same criteria for all actions can lead to fatal errors. The ideal thing is to guide of the proper market. For that we must be attentive to trends. We must be aware that if the trend indicates that the stock is going to decline, we must apply the stop loss at that instant.
Let’s be clear, not any fall indicates a tendency. If you’ve seen the history of an action, the graph typically shows a movement that resembles the figure of a handsaw. That’s because such action has undergone constant adjustments, either upward or downward. This is not a tendency. The tendency is begun to form when the fall begins to become constant. If you see that, do not expect a recovery, apply the stop loss.
So, you know if you plan to get a high return in the short term, or if your investment has a strong leverage, stop loss should become one of your favorite tools in the market area.