Term:SIMPLE PERCENTAGE STOP-LOSS

A strategy which allows an investors profits to accumulate while cutting his losses where a position goes against him. The simplest stop-loss strategy involves selling a share if it falls more than, say, 10% from the price paid and then maintaining a 10% stop-loss below the highest price which the share has reached since purchase. A stop-loss strategy is a method for cutting your losses while allowing your winners to run. Stop-loss strategies, no matter how complex they become, all start with the simple percentage stop-loss. To establish a simple percentage stop when you are about to buy a share decide on the amount which you are prepared to lose if the investment does not go as you predicted. Are you prepared to lose 10% or 15% or some other figure? Then deduct that percentage from the price that you are going to pay for the share to get your stop-loss level. If the share moves up after you have bought it, simply re-calculate your stop-loss level from the highest price which it has reached since you bought it. If the share moves down, when it reaches your stop-loss level you sell.

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