STREET DOGS: Why you need a stop-loss order
Barry Ritholtz advises the simplest way to avoid a large loss is to have a stop-loss in place, writes Michel Pireu
The simplest way to avoid a large loss is to have a stop-loss order in place. The simplest of these are the fixed-price stop and the trailing percentage stop. The problem with both, however, is deciding what price or percentage to use. Make the stop too tight and you’re likely to get stopped out often. Make the stop loss too broad and by the time it gets triggered too much damage has already been done. There’s no easy answer. Longer-term holders and volatile stocks will need a little more room to oscillate. Overly cautious investors will have to suffer the pain of being "taken out" more often than they’d like. With that in mind, here are three rudimentary approaches: Below an uptrend. The goal of placing a stop just below an uptrend is to liquidate a position that is in the early stages of a reversal. Using a daily, weekly or monthly chart (depending on your investment horizon) draw a line connecting the three most recent lows. Place your stop-loss short way below the line. Below a ...
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