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A Stop-Loss Strategy

by Steve Zolotow |  Published: Nov 30, 2011


In securities trading, a stop-loss order is an order to sell when the security falls to a certain price. For example, you buy a stock for one hundred dollars. At the same time, you enter a stop-loss order to sell it if it falls to ninety dollars. Why would anyone do this? The advantage of using this technique is that your loss is limited to ten percent of your investment, but potential gains are unlimited. There are, of course, drawbacks. Your stock may drop briefly below ninety, and then reverse direction, moving all the way up to one hundred and twenty. Your stop-loss order got you out for a ten percent loss. If you had followed a buy-and-hold strategy, you’d now have a twenty percent profit. The poker equivalent of a stop-loss order is to set limits on the amount you can lose in any one game or session. This ...

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