Investing in the stock market can be profitable - if you know what you are doing. Even then, however, there still are plenty of risks because no one can accurately predict what is going to happen. Using stop losses on your bids can reduce those risks and enable you to save a lot of money if your predictions go wrong. Here are some tips about using stop losses - these great money saving features that can help you.
A stop loss minimizes your loss because it allows you to choose a preset selling point if your stock suddenly goes south. As you know, stock can take some sudden and unexpected dips, which could lead to a total loss of your investment if you are not careful to prevent it.
By studying the stock of your choice, you can see where the lows have been in recent days or weeks, as well as the highs. Recent highs are definitely something you would want to take advantage of when you can. One way you can do this is by setting your stop loss a little below the average low that the stock has had in recent days - or hours. Your stop loss, wherever you set it, will minimize your losses by enabling the stock to become a market order and be sold at that rate when it gets down to your mark.
Another way to use a stop loss is when a stock is on the rise and then reaches a point at which you want to buy. Set your stop loss to that value, or possibly even slightly higher and this will minimize your losses on any gains that are made - if the stock should drop after that rise. This is called a trailing stop loss.
With this technique you allow yourself to make some profit before the stop loss even becomes activated. This is very effective enabling you to ensure that some profit is made first, and then the stop loss protects some of that profit. You will need to know how much you expect that stock to rise by looking at previous days patterns, and then select a value that will enable you to make some profit on that day. You will not want to set it too low or you could lose any gains that you make.
Stop losses are certainly one of the best ways to minimize losses made with stock market investments. It enables you to set it and then walk away. You do not need to watch it constantly, but you can go to work, or anywhere else, and let it take care of itself.
The greatest profits, however, will be able to be made if you are watching it. That way, even if you have a stop loss set, you will be able to sell your stock when it has reached the highest point and only starts to take a dip. When you cannot watch it, however, it is a real good way to keep much of your stock market trading earnings for the day.
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James McInnes is a professional share market trader and investment entrepreneur, with many years experience trading the Australian Share market. You can visit his site at http://www.investonline.freedvd.com.au for further information on trading the Australian Share Market