The concept of loss limit in investment;

The concept of loss limit in investment;

Recognizing the price and time to sell shares requires experience and sufficient information. In order to preserve capital and achieve profit, it is necessary to check trends, resistances, supports, fundamental condition, etc. before buying any share. By thoroughly examining a stock, there is an expectation that the stock price will rise and reach the desired profit. Now, if after buying a share, contrary to our expectations, its price starts to decrease, it means that either we made a mistake in our calculations or we entered against the market trend and did not have a correct analysis of the share. In this situation, there are two ways ahead of us:

1- Let’s wait until after the price reduction, the stock will reach our desired price again.
2- After a slight decrease, immediately exit the share

Staying in the stock without any plan until it reaches the price we want is very risky because it can lead to the loss of a large part of the capital. Exiting the stock after bearing some reduction seems more logical
A professional investor buys a stock with thorough research and determines the limit of profit and loss. If the desired profit is achieved or the share reaches its resistance, it will be withdrawn from the share. Because no share will be bullish forever. But if the stock falls instead of growing and reaches the point of loss, you should immediately exit the stock. If the stock market has a downward trend, the limit of loss in the entire market should be considered, and if it reaches that limit, we will completely exit the market and we will remain an observer until the market returns to the normal trend. In this case, we should get out of stocks that have not reached the point of loss.

People who invest by studying and knowing about the desired market and paying attention to the amount of their capital have definitely set price goals for themselves. These objectives include items such as purchase price, sale price, amount of profit and amount of loss. To invest in the stock market, we must first define our expectations and answer questions such as when to enter or exit a share, the expected profit and the amount of loss we are willing to accept. It is important to know where to exit if we make a successful trade and if our trade goes against our expectations for any reason then how much loss we have to bear. Loss limit is a tool that investors can use to avoid further loss and loss of capital if the expected profit is not realized.
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
Group of accountants, auditors, Tabriz
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