The idea is very simple. Once you have decided to buy a certain share, you should mark off a price, say, 10% below your purchase price, which will be your stop-loss level (for example, if you intend to buy a share at 1000 cents, set your stop-loss at 900 cents). If instead of going up as you expected, the share goes down, then, when it reaches the stop-loss price, you must sell it, because clearly your original decision to buy was wrong – at least in its timing, if not in both timing and selection. You must acknowledge your mistake by selling the share. In this way you limit the amount you can lose from any particular investment decision. Consider this well-known share market saying,
“If what you expect to happen does not happen, then you are always better off selling sooner rather than later”.