When it comes to stock trading, it is always important to keep a firm grip on your greed. This is because though it is the wish to earn some easy money that allures you towards stock exchange, excess of anything is bad, so is the case with greed. You can't kill it, for it is a normal human nature, but you can and have to control it, for the sake of its own satisfaction. If you have a good patience and control on greed, you are ultimately going to make some good bucks, which gratify your greed only. But the points to remember is never let your greed blindfold you.

This is where setting limits discover their significance. The point is:

?Whenever you trade stocks, you have to set an upper limit and a lower limit for the price of the stock where you would sell the stocks you hold.?

SETTING AN UPPER LIMIT

Most of the times when you buy a stock, you expect to retain it until the price rises, at least to a limit that gives you some profit even after paying your stock broker his fees. But this seldom happens with the new chaps, who are kind of over-enthusiastic and over-expectant from the stock trade. Even when the stock price rises sufficiently, they expect it to rise more and this greed driven expectation goes up and up. And they don't sell the stock, holding it with them for longer in a hope to earn more. However, there is a good chance that the traded stock price falls, and once it is so, they lose, instead of winning profits, which could have been the case if they had let the stock traded out when its price had risen. See, how greed plays its adverse role.

SETTING A LOWER LIMIT

On the other hand there is a similar cause for why you should set a lower limit for the stock. Since expectation always sparks in mind, you cannot believe that you have lost even when there is a good depreciation in the value of the stock in the stock exchange. You expect the stock price to rise and even if your stock broker suggests so, you don't want to trade the stocks away. What might happen is the stock value falls further down, causing a greater loss. If you would have sold the stocks when you see it falling up to the lower price limit you have set, you would have lost, in deed, but a planned and affordable loss in the stock trade. But now you have lost greatly to the stock exchange. To avoid such great losses, you have to set a lower limit and stick to it.

So, you must learn to make wise decisions regarding the lower and upper limits for price; when the stock price touches either of these points, you have to trade away the stock even though you expect the stock price to rise in the next few minutes.

This strategy protects you from bigger losses and you can do the stock trade safely in the stock exchange. Some good stock brokers also use this strategy to play it safe.