Risk management, stop orders

I plan to write a more detailed posting on this subject, but I wanted to get this idea out there quickly.

From my perspective, any loss from all stock trades on a given day should not be more than 2 - 2.5% of one's portfolio.  This is accomplished by both position size (# of shares) and the stop limit. Generally, people tend to buy too many shares with a stop that is too tight, and they get stopped out. Even though the loss was only 2%, few profits are made because they continually get stopped out. The solution is to buy less shares, with a wider stop, for the same 2% max loss.

It's so important to set stops and limit losses.


* ChristopherStockGuy is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. For details, see the post from SATURDAY, AUGUST 15, 2009 titled "Disclaimer".