(LATEST)Why Stop Loss is Important ??

!!!!!! WHAT IS STOP LOSS ORDER !!!!!!!!!!!!
It is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position. Setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%.

!!!!!!!POSTIVE AND NEGATIVES OF STOP LOSS ORDERS!!!!!!!!!

!!! ((POSITIVE))

The advantage of a stop order is you don't have to monitor on a daily basis how a stock is performing. This is especially handy when you are on vacation or in a situation that prevents you from watching your stocks for an extended period of time.

!!((NEGATIVE))
The disadvantage is that the stop price could be activated by a short-term fluctuation in a stock's price. The key is picking a stop-loss percentage that allows a stock to fluctuate day to day while preventing as much downside risk as possible. Setting a 5% stop loss on a stock that has a history of fluctuating 10% or more in a week is not the best strategy. You'll most likely just lose money on the commissions generated from the execution of your stop-loss orders

MAIN POINT !!!!! The point here is to be confident in your strategy and carry through with your plan. Stop-loss orders can help you stay on track without clouding your judgment with emotion

!!!!!!SOME MORE ADVANTAGES !!!!!

1. It can prevent small losses becoming the large one.

2. It can save you from unexpected news come in market and makes sudden move in price.

3. No extra brokerage or commission is charged , same charges for execution of trade.

4. No need to monitor stock on daily bases, simply placed a stop loss and can go on vacation or in a situation when you can not monitor price.

5. Traders can invest in other stock too with a freedom of monitoring same stock again and again

!!!!!!EXAMPLE!!!!!!!!

For example, Investor "X" has placed an order with his broker to buy 1000 shares of Reliance Inds at Rs.1000/- per share. he is expecting that the stock to rise up to Rs.1050/- per share. Now Mr X thinking if price fell below Rs.980,it may go down further. So Mr X does not wants to hold the Reliance Inds if price fells below 980. In this case Mr X will place an order in market named "Stop Loss" that if the price touched Rs.980 then sell 1000 Reliance Inds share
This is what is called stop loss.

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