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Stop-loss

Stop-Loss is the level where you will sell your stock if it starts falls down. Most brokers offer this as an automatic selling option in their systems as long as you set the limit. The stop-loss should be floating, which means that if the price goes up, you should adjust your stop-loss to other levels. Some keep a rigid system where they, for example, use -5% to calculate their stop-loss. This is easy to set, but it doesn't not take into consideration the fluctuations (volatility) that some stocks have during the intraday. We recommend to set the stop-loss based on your time horizon, risk, and volatility. You can use percentages or look at the support levels and add a safety margin. If the stocks fall below those supporting levels, occasionally it will fall even further. Some traders like to use trends to their advantage, but make sure you give this level some slack. Amongst devoted people that uses technical analysis as their decision tool, all major signals should be verified by +/-3% margin. To illustrate this: if a trend is broken, it must be confirmed by the falling 3% below the trend line. Same goes for pivot points, accumulated volume etc.

Selling a stock, commodity or currency is way harder than buying it. Naturally, we always hope for more profit or to get back some of our losses. A strong stop-loss strategy will save you a lot of money. If a stock is sold because of the stop-loss you can still buy it back, perhaps at lower levels where you own more shares (accumulation).

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