Watch your stop-loss

An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position.

Also known as a "stop order" or "stop-market order".

In other words, setting a stop-loss order for 10% below the price you paid for the stock would limit your loss to 10%.

It's also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time.

A stop-loss order is such a simple little tool, yet so many investors fail to use it. Whether to prevent excessive losses or to lock in profits, nearly all investing styles can benefit from this trade. Think of a stop loss as an insurance policy: you hope you never have to use it, but it's good to know you have the protection should you need it.