It is difficult to stress importance of placing and maintaining stop-loss orders protecting your investments. With Graham Investor method of investing, one might think there is such a margin of safety involved that stop-losses aren't needed. Nothing could be further from truth.
If you are buying a house, three most important pieces of advice anyone can give you are: "location, location, location!" With Investing they should be: "preservation, preservation, preservation!" Of capital, that is. This is best illustrated with percentages.
As an example, you may buy any number of stocks in a $10,000 portfolio. Without stops, if you lose 20% of value of your $10,000 (i.e. $2,000) you will need to make 25% on remainder to get back to where you started. Likewise, if you lose 50% and are left with $5,000 you now need to make 100% profit to get back to where you started. How many people make 25% in a year? Not many! How many people double their money in a year? Even fewer!
You might think you won't lose 50% of your investment, but it does happen, and a lot more regularly than any of us care to admit. So, always use stops.
Once you have established a buy point, you can work out where to place initial stop. There are several ways of doing this:
1) Place stop one tick below most recent resistance level or swing low.
2) Use a fixed percentage, e.g. 8%, 10%, 12%.
3) Use volatility as a guide. Take a 14 day moving average of High-Low range for stock (including gaps). Use a stop of 2.5 to 3 times this range.