Today we will talk about stop-loss order. Let’s see what Investopedia says about stop=loss order:
1-Most investors can benefit from implementing a stop-loss order.
2-A stop-loss is designed to limit an investor’s loss on a security position that makes an unfavorable move.
3-One key advantage of using a stop-loss order is you don’t need to monitor your holdings daily.
4-A disadvantage is that a short-term price fluctuation could activate the stop and trigger an unnecessary sale.
Let’s elaborate for a second on each of those points:
1-Are you consider yourself in the group of the most of the investors? If Yes, you’ll benefit from the stop-loss order and you’ll make average returns like most of the investors. If Not, you’ll not benefit from stop-loss order and you’ll not make average returns like minority of the investors.
2-Unfavourable move of the security maybe temporary. Applying stop-loss order will liquidate your security and permanently cut you off from the future gains of the security when the market conditions improve.
3-You don’t need to monitor your portfolio holdings daily even without the stop-loss order. Just make sure you have very well run, stable and with clean balance sheet companies.
4-Short term price fluctuations and normal and necessary. They allow strong minded investors increase their wealth and weak minded investors have an illusion that by liquidating going down security they avoided losses.