One of my favorite tools is trailing stop loss orders to protect from loss.
It turns out some investors sold stock at a gain because of stop-loss orders.
We set stop-loss orders on our open trades to keep our maximum loss on each trade to 8% or so.
Because of the whopping and sudden decline in stock prices the afternoon of May 6, 2010, many stop-loss orders were triggered.
The closing price for many stocks was higher than either the price at which the stop-loss orders were triggered or the price realized on the sales.
Very interestingly, both Fisher and Buckingham advise against stop-loss orders.
He compared the prospects to October 1987, when portfolio insurance, just "a bunch of stop-loss orders on a large-scale basis, " caused the market to plunge 23% in one day.
The theory behind stop-loss orders is that they enable you to avoid a meltdown in the stock, and thus they protect you from a loss or preserve your profit.
If you are a stock investor, consider strategies such as placing stop-loss orders to reduce losses in a volatile market, subscribing to services that email you company specific news as it happens, and setting up loss review trigger points to review your investment.
If we talk about support levels real quick, I think with these indicators proving to be less reliable in turbulent markets, I personally have relied heavily on using trailing stop-loss orders, as I mentioned, as well as indicators like volume, price performance, and support levels.
That was where a lot of traders had "stop-loss" orders to sell, and sell they did.
For example, those who enter automatic "stop-loss" orders to sell stocks at a certain level below the current price can be knocked out of positions at a loss when a security suddenly tumbles often at prices well below where they expected.
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