I am confused a bit. From my point of view (which could be wrong because i am not an expert in trading yet) Stop Loss is helpful only when stock is falling down significantly. Example: I have APR shares bought for $1.5 per share and now it is $0.33. I knew that oil prices will go down but I thought that maybe it will recover soon, also they paid dividends. Now I am stuck with it and do not know what to do with it. I definitely should have used Stop Loss. But if I used Stop Loss on many positions I had I would have to many losses now. Examples: I had MGT and CLRB shares which I bought for $2.60 and $3.75. Both stocks were falling down and I kept them for a week/few weeks and was able to sold it with profit. What do you think - should I use Stop Loss on each trade? (although i am trying to analyze before buying and selling I am still emotional trader)
Stop loss is not for everybody. When a stock is very volatile like MGT, its not a good idea because as you see, it can rebound very fast. If you are able to stick around and baby sit your trades, you dont need it.
A stop loss is used to cut your losses and abandon a trade when you think it's time to get out. They're obviously for people who can't monitor their trades and for people who don't mind taking small losses so they can free up their money for a more profitable trade. You said you would take a lot more losses with stop losses which may be true, but you may have made even more money not waiting for those positions to climb back out of the hole just so you could turn a loser into a very small winner. I personally evaluate each trade I enter and set a stop loss at a point that if it drops to that number, it either won't return for a long time to be profitable for me, or will drop real fast once heading below that number. Sometimes cutting your losses is the most profitable move you can make in the long term for your financial health. Chasing with your emotions can cause many good traders to lose it all. In my opinion, you should always set an entry price, and a stop loss (whether manually in your head or an actual stop loss order). With these two numbers, combined with the amount of money you're willing to lose in a trade if it goes wrong, you can do the math to figure out how much you should really be investing per trade. I suggest you read these two threads which cover stop losses and money management: http://stockaholics.net/threads/money-management.684/ http://stockaholics.net/threads/manage-risk-with-position-sizing.1129/
In August of 2015 there was something called a "flash crash" that got me to really look long and hard at setting them. I got hammered in that flash crash when my stop orders got executed and then rebounded back within 2 minutes. Very upsetting. The advantage of the stop loss is that it removes emotion from trading. The disadvantage is the gap down's or flash crashes can cause much higher losses than anticipated. I am able to monitor my trades daily so since the flash crash, I still set stop losses but instead of an execution order I have switched to a price alert notification. In other words I still set my line in the sand at the time I make the trade but set an alert at that price instead of an actual stop. Then if it hits that price I get an email and a text alert. I immediately go and look at the stock (in most cases I'm already seeing it is close to alerting) and I look at the fundamentals to see if anything has changed since I bought it. If it is dropping due to a normal pullback and I don't suspect a market correction I'll let it ride and lower the alert. If I am worried about a market correction, see any downgrade on the stock or any downward earnings revisions, or if I have another better stock I am waiting to get into when funds are available, I'll sell it and move on. But, I still maintain that one has to be willing to let a stock go with a loss when the tide turns against you and if one cannot do that manually, then a stop loss is the better way to go since flash crashes and gap down's are not that common on fundamentally sound stocks.
