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

Answer 4 Selection “It puts an absolute limit on the amount of dollars you can lose in any given trade” is incorrect.

Prior to entering a trade you need to examine the chart and decide where you want to get out if that trade starts going against you. Your decision is likely to be much more objective if you make it before entering a trade. Every trade deserves a protective stop—but a stock may gap across that level. A stop is not a perfect defense but it is our best defense against damaging losses.