Using a Stop Loss in Trading
Trading the capital markets requires a cohesive trading plan where you find a strategy for entering a trade and then build your risk management to aim to generate a profitable business. Most investors are enamored with their trade entry, but fail to spend the appropriate time building a robust risk management plan which is the backbone of their trading business. One of the first steps and investors should determine when they decide they like a specific trade is to determine where they will stop out of their position with a stop loss.
Creating a stop loss
Prior to initiating a trade, you should first determine how much you are willing to risk on that trade. The risk could be in the form of a percent of your capital, or a dollar figure. You could also determine that you are willing to risk a specific figure related to the security you are buying or selling.
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