Here’s Why Setting A Stop Loss Is So Important

One of the most important things in investing and trading is risk management.

Some of the best risk managers in the world never risk more than 2% of their portfolio on a single stock. Others make sure they are hedged or protected from a viscous move that could go against them. Another strategy, and one that does not get enough attention, comes in the form of setting stops.

Setting stop losses can protect trades from becoming investments and investments from becoming headaches. A stop is a price target you pick to sell at no matter what. It’s the maximum amount of money you’re willing to lose on a position. One of the best explanations we’ve seen about this comes from a trader on StockTwits named Tischendorf. He’s constantly writing about the stock market and sharing interesting trade ideas. In a screenshot he shared earlier in the year, he perfectly explains why stop losses are so important. You have to read this:

Screen Shot 2016-07-22 at 4.10.16 PM

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