How do I determine when to cut losses on a stock?

Although the popular notion is that you should fold when the stock falls from 10 per cent downwards, there are other factors to consider:

• If you get dividends from the stock
• If you bought it at a higher price than makes sense
• In case you have diversified stocks

The chief rule of investing is to protect your capital. This might seem counterintuitive when you are on the prowl for profits.

While folks who have gotten involved in the stock market since the coronavirus pandemic think equities only go up, many traders may be in for a rude awakening.

So, yes, stocks do come down.

But if you have purchased shares in a stock, and the security has only been in the red since the day you started your position, should you sell?

The golden rule of stock investing is to hit the "Sell" button when it is down ten percent from the price you paid.

Here are some other tips:

• Remove your emotions and stick to your price target.
• Only invest what you can afford to lose.
• Avoid chasing your losses and get out of your position when it is clear your investment is going against your strategy.

That said, if you are planning to hold this stock for the long term, whether it is Walmart or McDonald's, you should most certainly buy the dip.