Monday, 25 April 2022When you study investment strategies in the stock market, there are certain terms that you will often hear, namely profit taking, cut loss, and stock stop loss.
In short, cut loss is a term that is usually used by investors when their portfolio performance is declining, while profile taking is the opposite, namely the term used for an increase in the performance of their stock portfolio.
Meanwhile, a stop loss is an automatic order to buy or sell a stock when it reaches a certain price.
For more details about the meaning of profit taking, cut loss, and stop loss, let's see the explanation.
1. Understanding Profit Taking
Profit taking is the act of investors selling their securities or portfolio assets to maintain yield performance after experiencing a significant increase.
It can be said, profit taking is profit taking by investors due to a rapid increase in stock prices which is usually caused by certain sentiments.
Although profit taking is profitable for the investor concerned, profit taking can also have an impact on other investors. These losses occur when the price of their assets suddenly weakens due to a massive sell-off in one period of time.
Profit taking actions carried out in groups can have an impact on the stock price of a company, the cumulative share price in a particular sector, or even the entire financial market.
If the price of an investment product suddenly drops after having previously strengthened, without any negative issues or sentiments affecting the product, it is usually caused by profit taking by investors.
2. Definition of Cut Loss
Cut loss is a term used to describe attempts by investors to limit losses by selling shares as their share price moves down.
The term cut loss itself comes from the English idiom, cut one's losses. The Merriam Webster dictionary defines cut one's losses as stopping an activity or business activity that fails to reduce losses further.
The Financial Services Authority explained, share cut loss is the term used when we sell shares at a lower price than the purchase price, so we experience a loss.
Just like the meaning of the English idiom previously explained, cut loss is not to realize losses, but to prevent bigger losses if the price of the shares held continues to decline.
3. Definition of stop loss
Stop loss is a term that describes a limit to limit the losses experienced by traders or investors, either when buying or selling shares.
A stop loss is an order given to a broker to buy or sell a stock when it reaches a certain price. Thus, investors can reduce losses due to buying or selling certain shares.
For example, you set a stop-loss order 10 percent below the price when you bought the stock, meaning you limit your losses to 10 percent. Suppose you just bought a property for US dollars per share.
After buying the stock, you enter a stop-loss order for 100 US dollars. If the stock drops below 100 US dollars, then your shares will be sold at the prevailing market price.
That's the explanation of taking profit, cut loss and stop loss. From some of the above understanding can be our guide to reduce risk in playing in the stock market.
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This can be a guide for me, because I am also still new to the world of stocks and still need to learn a lot more about stocks