STOP-LOSS

Now, I'll discuss regarding the Stop-loss which is the most important part of Money Management and the most ignorance part in our trading plan.

From the newbie to expert, everybody knows the meaning of stop-loss. So, I’m not going to translate it.

What is Stop-loss? I think example is better then definition.

Say, you buy a stock @ Tk. 100 and your loss bearing capability is 5%. In plain English you can take loss upto 5%. That is if the price of the stock comes down upto Tk. 95. Now, you are not able to take the loss further more. So, you put the stop-loss of that share at Tk. 95. If the price goes below the Tk. 95 you will sell the share otherwise you will hold the share.

Now, if the share goes to UP after your buy then what will you do now. Will you put your stop-loss at Tk. 95. No No No No No.

Say, after buying your share if it goes to Tk. 110 then your stop-loss will be Tk. 104.5. If price goes to below Tk. 104.5, you will sell it otherwise hold it as your loss bearing ability is 5%.

Now, some smart will tell me that if price bounce back from Tk. 103. I’ll not go to debate with him/her as s/he will not able to give me any grantee that price will not go further below of Tk. 103. Yes, if price bounce back with a strong trend and you find the buy point, definately you can buy it again.

Now the question is should you use Stop-Loss or not? It’s a million dollar question. Answer is that it depends. If you are an investor with purely long-term perspectives and with a diversified portfolio, you should probably not.

But if you are a Trader or Short Term or Mid Term investor, pls. wait upto tomorrow mid night. I’ll post regarding the importance of Stop-loss. I strongly believe you will be benefitted.

Finally, Bhiya and Aapu, It’s true that the hardest part of investing is not buying shares, it is when to take profit or more importantly, when to stop-loss. by JC