Tuesday, August 9, 2011

Stop Loss

When I opened the financial page this morning, the first thing is Dow Jones Industry Average has gone down more than 600 points.  Before I went to bed last night, it was only down around 300 points, at some time, there was even some sign of recovering.

In such times, it shows how important it is to have a plan, know your stop-loss price and execute your trade according to the plan.  The purpose of a stop-loss price is there to protect you.  The stop-loss tells you that your original judgement had been a mistake under the current market condition.  It tells you maybe you are on the wrong side of the table, so better jump out quickly and join the right side.

There should be no hesitation whether to execute your sell order or not once your stop-loss is hit.  Use Nike's slogan, JUST DO IT!  Nobody will know for sure after you sell your shares, whether it will quickly rebound or fall further, but it is to prevent the worst case scenario.

Happy investing.

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