Understand Cut Loss Term, Trading Strategy and Stock Investment

Cut loss is one of the strategies in investment and trading share. This strategy is carried out to avoid potential losses and minimize the value of losses experienced, due to falling stock prices.

Stock prices often go up and down, this condition is something commonplace. Even so, as an investor or trader, it is necessary to use a strategy in dealing with it. It is important to know when to cut loss, to prevent losses.

What is a Cut Loss Strategy?

The term cut loss has the meaning of cutting losses. The meaning of cut loss itself refers to a stock strategy that is carried out to prevent stock losses, which is done manually.

Quoting the page of the Financial Services Authority (OJK), cut loss is an effort to avoid greater losses, when stock prices decline, by selling shares at a lower price than the purchase price.

This cut loss strategy is important to do, be it by professionals or beginners. The goal is to maintain capital, when the financial crisis or other problems, which are associated with declining stock prices.

When to Cut Loss?

• For Stock Traders

For stock traders, a cut loss can be done immediately, if the price of the shares held continues to decline. Stock traders also need to know the direction of stock movement, within a certain period of time, according to the trading period.

• For Stock Investors

Meanwhile, for investors, a cut loss can be done if it is known that there is a change in the fundamental performance of the company where the investment is made. For example, when the related company is in the middle of a certain case or when the Composite Stock Price Index (CSPI) experiences a decline, even in a free fall.

How to Determine Stock Cut Loss

In determining when to cut loss, investors or traders also need to know the right way, such as by considering the following:

• Support Point

In determining the cut loss, it can be started by determining the support point. If the stock price is at the support point, or drops lower below the support point, it can immediately make a cut loss.

• Purchase price

In addition, the decision to cut loss can also be determined from the purchase price. For example, by setting a cut loss limit that can be borne, before trading. That way, the limit on the value of the losses that occur can be predicted from these limits.

• Analyst Recommendation

Apart from support points and purchase prices, cut loss can also be determined based on daily stock recommendations from stock analysts, which are sent by securities companies to customers. Also, it can be seen through the website of the securities company.