Stop-loss method

Stop-loss method: This method is focused on the price movement of the stocks in a particular portfolio against the purchase prices. The current market price of stock is consistently compared to the purchase price to determine the market direction of these stocks. Stop loss method works. You can use it to forestall heavy losses. An investor who purchases a stock at $100 with a stop loss of 10-20%. It therefore means that if the stock drops below the range of 80-90 automatic sale of the stock is expected to be executed. If your stop-loss is 10% you can't lose more than 10% of your stake plus your stockbroker's charges. By using this system you may sometimes sell a good stock too soon and frustratingly watch it go on up and up. That is the price you pay for operating a safety net.