To invest in stocks, it is necessary to have a more comprehensive understanding of the basics. So, what does the stop loss technique for stock trading mean? What should be noted for stock stop loss? Below are the answers for you one by one.

What does the stock trading technique stop loss method mean?

The technical stop loss method combines stop loss setting with technical analysis, eliminates market random fluctuations, and sets stop loss levels at key technical levels to avoid further expansion of losses. This method requires investors to have strong technical analysis skills and self-discipline. In actual practice, setting technical stop loss can refer to the following six points:

The stock price fell below the middle price of the previous trading day.

The stock price fell below the lowest price of the previous trading day.

The stock price has fallen below the 5-day cost moving average (a technical indicator reflecting the average holding cost in the market, code CYC).

The stock price fell below the upward trend line.

The stock price fell below the support level of the previous horizontal consolidation.

The stock price has fallen below the bottom support level formed by the convergence of previous fluctuations.

Fixed stop loss method refers to setting the loss amount as a fixed proportion, and buying it out promptly once the loss exceeds this proportion. It is generally applicable to two types of investors:

Firstly, investors who have just entered the market;

The second is investors in high-risk markets. The mandatory effect of fixed stop loss is quite obvious, and investors do not need to overly rely on their judgment of the market.

The setting of stop loss ratio is the key to fixed stop loss, usually determined by two factors:

The first is the maximum loss that investors can bear. This ratio is related to investors' mentality, economic affordability, and profit expectations.

The second is the random fluctuation of stock prices. This refers to the natural fluctuation range of stock prices in the absence of external factors. The setting of the fixed stop loss ratio is a dynamic process of finding a balance between these two factors, and investors should set this ratio based on experience. Once the stop loss ratio is set, investors can avoid being shaken out by unnecessary market fluctuations.

The above is a detailed introduction to stock trading techniques and stop loss methods. Stock investors should have a better understanding. So, what are the precautions for stock stop loss?

Ten Don'ts for Stock Stop Loss

Firstly, do not cut losses when the stock price is significantly below its value. In bear markets, irrational sharp drops often occur, and some stocks with investment or speculative value may fall to low prices that are usually unattainable. At this time, investors should have patience for long-term holding and avoid indiscriminate stop loss.

Secondly, when a stock stabilizes after falling to a certain level and receives attention from mainstream funds in the market, and incremental funds continue to actively intervene, do not stop losses when it shows effective amplification in terms of volume and performance.

Thirdly, if investors suffer huge losses due to deep trapping, do not cut losses. Because it is too late to stop losses at this point, not only can it not recover much loss, but it will also seriously undermine investment mentality.

Fourthly, for stocks that are washed away by market makers, do not stop losses. Before the market maker raises the stock price, in order to reduce future resistance and increase the average cost of the market, they often create stock price fluctuations, attempting to drive out investors with weak will from the market. Investors should maintain confidence at this time and not arbitrarily cut losses.

Fifth, do not stop losses during normal technical corrections in an upward trend. As long as the overall market trend does not weaken, we can adhere to the medium-term holding strategy and short-term high selling and low buying operation strategy.

Sixth, there is a limited downward space for individual stock prices, so do not stop losses. When the stock price is compressed to an extremely low position after a long-term decline, and the space for further decline is limited, investors not only cannot stop loss and sell, but also need to consider how to actively absorb.

Seventh, do not cut losses when the volume decreases during the end of a bear market. The shrinking trading volume indicates the depletion of downward momentum, and it is undoubtedly unwise to stop loss and exit at this time.

Eighth, do not cut losses when there is a panic market. The emergence of panic selling is often an important characteristic of stock prices reaching a temporary bottom, and investors should avoid blindly joining the ranks of panic selling.

Ninth, do not cut losses when the stock price approaches historical important support levels. At this point, it is advisable to take a wait-and-see approach and not rush to buy the bottom and rebound. It is necessary to wait for the final clear trend before taking further action.

Tenth, do not cut losses when the stock price is close to an important bottom area. When the stock price is in the bottom zone, it usually no longer has downward momentum, but sometimes there may still be a small gap with minimal trading volume. Investors need to have firm confidence in holding their shares.

Basic knowledge of stock entry, investors should have a better understanding of stock technical stop loss methods and stock stop loss precautions, which can be applied to actual stock trading. At the same time, investors also need to be aware that stock trading should not be a child's play. They need to avoid risks and seize opportunities to sell high and buy low.