Stop Loss For Long Term Investment
I was going through some of the YouTube videos where people were talking about the stop loss in trading. Now one of the user commented asking how to do stop loss as a long term investor. The original poster have not posted so, I thought of going through this question myself and tell what exactly I do in this case.
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The thing is if your time horizon is 5 to 10 years, the stop loss doesn't make sense but it's good to do but the problem is you cannot do it every day right. Stop loss means that you don't want your investment to go in loss and if the stock price goes down just come out of the stock as soon as possible. Now when you are investing for the long term the stock can go down as well as go up so if you put stop loss, you get an exit but then you will not be able to ride the profit after wards.
That's why the best thing to do is to monitor the stocks once a month. Now for that we have to keep limited number of stocks in our portfolio so that we can monitor. And then take a note that you should take an exit or not. The first rule is never catch a falling knife, that means if the stock is going down try not to average. Instead to a upward averaging of stocks which are going up. In that way you will be able to ride the profit.
And next, once a month check how the company is performing. If it's not performing well then it's better to come out of the stock and invest in stocks which are in upward movement. So yes you don't have to keep the stop loss as such, but try to review your portfolio once a month so that you can cut down your losses and ride the profit.
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Stop Loss is good to use, but currently I am fighting myself to Take Profit. We should have something that forces us to take profits instead of trying to get a little bit more and a little bit more. I hope I will not end up stuck with some of my assets just because I didn't sell in time.