The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

Question 50—A Protective Stop

Using a protective stop makes sense for all of the following reasons, except:

1. It is a reality check, reminding you that prices can move against you.

2. It works against the ownership effect, when people fall in love with their stocks.

3. It reduces the emotional stress of making decisions in open trades.

4. It puts an absolute limit on the amount of dollars you can lose in any given trade.