Importance of Stop-Loss

Bhaiya(s) and Aapu(s), I hope you've read my previous post regarding Stop-loss.

Now, I'll try to show you the Importance of Stop-Loss. Again we will take a help of examples. Say, you have bought a share @ Tk. 100 and your loss bearing ability is Tk. 10 (i.e. 10%).

Now, the price of your stock falls and comes down to Tk. 90 and you sold your stock accordingly to your loss bearing ability. Now, the most important thing is you have cash 90 taka for another trade. If you find the same stock or the other stock gives you a buy signal you will buy it. If you like to cover your loss, you will have to earn Tk. 100 by your cash Tk. 90. Recovering loss of Tk. 10 is not difficult as you have remaining taka 90.

Now, please look at the below table :

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Loss                  | % required to come break even
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10% or Tk. 10   |  11.11 % (you have to earn Tk. 100 by Tk. 90)
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30% or Tk. 30   |  42.86%  (you have to earn Tk. 100 by Tk. 70)
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50% or Tk. 50   |  100%     (you have to earn Tk. 100 by Tk. 50)
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Now, see the effect of Stop-loss:
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Say, you are a crazy/emotional trader (Of-course you are not). You have failed to stop your loss AT RIGHT TIME and your loss goes to 50% i.e. now your share price is Tk. 50. It's toooooooooooooooooo late. Because, you need to earn 100 taka by 50 taka to come to the break even. Isn't it hard?

Now, compare and see the reality - Which one is easy ?

Earning 100 taka by 90 taka or

Earning 100 taka by 50 taka.

Note : I've tried to discuss it as simple as possible. If you could not understand any term pls. feel free to ask me. by JC