How do you determine a stop loss? Some services recommend selling any stock that falls 7-8% below its purchase price?
A. Stop loss levels are based upon the entry price. When the stocks are initially recommended, they need a little wiggle room before they start running especially if they have high beta and are being bought in a neutral or declining market environment. After a trade becomes profitable we gradually tighten the stop loss levels to lock in at least partial profits. If you tighten the stop loss too aggressively, you may be prematurely sold out of a potential winner during a normal pull back. That is why we adjust stop loss levels only on weekly basis.
