If I purchase stock at .7.00/share and put at stop limit of 6.50, i wont lose much, why doesnt every1 do this?

Question

Also, are there limits to how close you can have the STOP limit to the price you bought it at?
Why doesnt everyone do it?
Sounds too easy.


Thanks

Answer 1

You are making the ( false) assumption that when you buy a stock it is either going to go up all the time or down ( and dump it !) You hear the word" volatility" that's what it means...some stocks go up a lot or down a lot...but don't absolutely STAY at one place or the other. Some investors have enough confidence in the picks they make that losses are just something to " put up with", because they know the price will again change in their favor.....But, if they set a stop loss, they're OUT when the price comes back. No chance to recoup their " loss", no chance to make the " gains" that they know are in the stock.
Last May I had stocks that lost over 10-12 percent...but by July they were back to even..and by the end of the year a couple were up 25%...and one 35%....
Just different approaches to the same task. I guess.
P.S. Many people buy MORE when a stock drops ( considering it a bargain)... not something I recommend. ( ... but I have done it in rare cases)

Answer 2

The idea of trading is to sell higher than you bought. A 'stop-loss' may lock you into exactly the opposite.. selling lower than you bought. Suppose the trading price meanders from 7 down thru 6 and then goes to 15. The stop-loss at 6.50 will preclude your realizing the gain, which was what you bought the stock for in the first place. The better choice is to watch the stock in real time and make minute-by-minute decisions. If you don't have time to do that, maybe you should buy mutual funds and pay someone else to do so.

Answer 3

Most people don't do this because they can't handle the aftermath if the stock goes down to hit $6.50, but then rises shortly afterwards to go over $8.

Most investors also, will be able to take a short-term loss if they feel that over the long-term, it will rise. So they don't put this in because they don't want to lose their investment.

One more reason is related to the above. You can't be following the price on a constant basis, so you might not even know if you sold. The price may rise quickly after, and you think you're still in the position, but you're not.

I'm sure there are many other reasons also, but these are the ones that I can think of quickly.

Answer 4

Sometimes people are willing to assume more risk because it is a more speculative stock. Buying a stock that just releases bad news, expecting a rebound could be a situation where you might be willing to eat a short term loss for potential long term gain.

Answer 5

You said you wouldn't lose much!!! Have you done your calculation? .5 on 7 is 7%.If we lose at this rate, it will take just 14 trades to completely lose our capital.(brokerages are not included) Not everyone needs to place stop loss orders.Only day traders and short term traders need them regularly.Even they cannot afford to lose 7% in a single trade.That's a lot.We cannot afford to lose more than 1 or 2 % of our capital in a single trade.
Place a stop order taking into consideration of this 1 or 2% rule in intra-day trades.

Answer 6

you are able to position a end loss once you purchase the inventory or any time after. maximum pro investors trust that if their position turns adversarial to them by technique of more effective than 8% to 10%, they have made a mistake. No time for emotion, in basic terms eliminate it, rescue as a lot of your capital as you are able to, and then extra on to different pastures. A end loss, nicely placed, will attempt this for you. allow you sleep, take a time without work. imagine of it like a parachute. I placed one on each position I take on the instantaneous the commerce takes position, even as I surely have the chart on the demonstrate, my interest on the information, my palms over the keyboard.

Answer 7

I think that's because many investors are still beginners. So they do not know the importance of stop orders.

By the way, I'm in Japan. Many Japanese brokerages do not have stop orders, yet. That's unbelievable!

Answer 8

Because most people smoke, drink and drive and eat at McDonald's despite the fact they will die of cancer, car crash and heart attack.

Not everybody is as smart as yourself.

There are no limits. You can place a stop at $6.99 if you want.

Answer 9

You can theoritically lose 100& of your money but you can gain <100% if you are confident in your picks which I am guesing you are not.