Why Setting Stop Losses Creates a Profitable Stock Market Portfolio

In this week’s show, Dale discusses why setting trading stop losses will ensure you create a profitable stock market portfolio.

Unfortunately, setting stop losses can be challenging, as you need to be close enough to your buy price to ensure you do not lose more than 2 per cent of your capital, yet far enough away that the stock has room to move, in case it falls for a short period of time after you buy into it. Individuals frequently set stop losses far too tight and end up losing money, only to find that the stock rises again after they are stopped out.

When developing a stop loss trading strategy for blue chip stocks, it’s important to not only know how to place your stop loss and take profits but also how to setup a stop loss to minimize any downside risk.

When setting a stop loss on blue chip stocks, there are a couple of options you can use including percentage based stop losses and trailing stop loss strategies. So Dale will be discussing the importance of using stop losses including how to use a trailing stop loss and how to use a stop loss order when trading.

It is also common for people to set profit targets or what is known as a profit stop loss when selling stocks, where the exit is set at a pre-determined level of profit. Unfortunately, people who use this exit strategy generally achieve returns well below their expectations because as the name suggests, a profit stop loss actually stops your profit, which defies the golden rule of letting your profits run.

Given this, it’s important before you trade to really understand how to apply stop losses so that you not only protect your profits but your capital as well.
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