ONE OF THE smartest things I've done with my investing is to start using stop-loss orders, saving myself a fortune. I use them when I take chances on speculative stocks, and they keep me from getting burned. And even on my solid, long-term investments, they spare me big drops and I can always buy back in later. The trick is just believing in why you bought it in the first place and not hesitating to jump back in while it's down.
Stop-loss orders can be winners
- Z., online
The Fool responds: Placing stop-loss orders when you buy a stock can indeed be helpful. They direct your brokerage to sell the shares immediately if they fall below a price you specify, such as 10 percent below your purchase price. That way, you can avoid losing more than 10 percent.
Be careful, though, because many people end up ejected out of good stocks that temporarily swoon and soon recover. And frequent buying and selling generates trading costs. Some brokerages allow you to set trailing stop-loss orders that reset at a certain percent below the current price whenever the current price changes.
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