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How to Use a Stop Loss: Technical Analysis Primer

Another effective way to use stops is by not using stop loss orders at all. Instead of using “hard stops” (real orders that can trigger on a certain price break), attentive traders may want to consider mental stops that are tied to alerts generated by your trading platform. While more subjective than hard stops, some experience in the markets can often help you determine whether that intraday stop violation is likely to hold, or whether it's just a whipsaw. Deciding to honor stops only when a stock closes below your condition prices is another way to accomplish this same objective.

Mental stops can spare you some unnecessary losses, but they also require experience and attentiveness to the markets. If you have a day job, opt for the peace of mind that hard stops provide -- just keep them from being too close to your support levels.

While stop losses will likely continue to elicit impassioned opinions from investors for the foreseeable future, knowing the specifics about implementing stops can help limit your risk, lock in your gains, and take some of the emotional impact out of your next trade.

This article is commentary by an independent contributor.
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