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Should we have stop loss in investment?



What is a Stop Loss?

Stop-loss means to exit the position to limit the losses when you fear that the prices may move against your trade. For instance, if you have bought a stock at Rs 100 and you want to limit the loss at 95, you can exit the stock as soon as the stock reaches 95.

Should we have stop loss in investment? 

Many investors are confused about whether or not to place stop losses on investments. You may have heard experts on TV and radio say that it is a good idea, or you may have read something in a magazine from some self-proclaimed guru. You might have asked yourself if you should keep them on or if you should get rid of them completely. 

There are a lot of investment rules that you should be very careful with. A Stop Loss order is something that could save you from getting into trouble. On the other hand, it can also cause you to get into trouble if you use it improperly.

Stocks have very high volatility. It can fall up to 60-80% in correction, then will bounce back, and rise 100-500% or so from your buy price. Therefore, it is a bad idea to trigger the Stop loss on your investment stocks if the company is good and you have an idea to get the rise of at least 100% from it. 

Stop loss is a good idea if your returns expectations are low and you traded for intraday or short term but for long term investments with great returns expectations Stop loss is thumbs down from our side.

Warren Buffet – Unless you can watch your stock holding decline by 50%  without becoming panic-stricken you should not be in the stock market. 

Let us talk about our own case study, in fall of 2018 few of our recommended small Cap stocks corrected heavily in the range 50-60% even. But after 2019 i.e. in next Rise they have more than doubled from our recommended price mind it, it doubled from Entry price and not from bottom. Had we exited those counters in fall, today we would not have enjoyed returns on those investments.

We strongly believe stop loss is must only in the short term or intraday but not in investment. So we need to maintain the investment position size the same as our risk size because the whole amount is at risk and never even think of leveraging an investment account. 

Multibaggers.co.in is a SEBI registered stock advisory company. We provide not only long term advisory services but also intraday trading advisory.  The best part of Multibaggers.co.in is we focus not only on giving calls but understanding and guiding you on your money management and give personalised advice just meant to help you handle matters related to investment and trading stocks using authentic and calcualtive methods that eliminates any fear of issues later on.