As you all may have heard in the news, Wall Street got belted last evening. New York plunged due to the fear of investors of further credit crisis. The Dow fell by about 362 points or 2.7%, one of the biggest falls of the year.
In turbulent times such as now, being in a possession of a good trading plan is a must.
In this post, I’d like to take an opportunity to put stop loss into perspective.
This week, I had two open positions on shares CFDs. One was in the red (loss), and another one was in a profit position. This morning, I had exited on both positions. The first one was because my stop loss had been triggered and the second one, I exited voluntarily.
Let’s talk about the first one.
Because of the big fall last night in New York, that particular share went down like mad in the opening. In the diagram, I’ve labeled the graph with (1), (2), and (3). I bought the share at around price (1) a few days ago. This morning, the share gapped down. My stop loss was placed at (2). The share price was hovering at my stop loss level only momentarily. The stop loss was automatically triggered. If I had not placed the stop loss earlier, I might have hesitated and I might sold at an even lower price, let’s say around (3)? Now, by the end of the day, the stock did rally. But as I have said in my previous post, what if it doesn’t? What if it continued free-falling throughout the day?
Moral of the story: Use Stop Loss.
P.S. This post is based on my own personal opinion. As I’ve said before, exercise your own judgment.