a.  Because the stop-loss order price of $53.00 is set so closely to the recent close of $53.75, it is likely that the stock will be sold when the stock fluctuates around its closing price. When stop-loss orders are set too close to the market price, the chance of the price declining results in too much trading. This generates high commission costs and taxes for the seller. Steve should hold for the long term and put his stop-loss orders farther away from the current price.

b. Steve should set his stop-loss order to safeguard against a major fluctuation, not a minor fluctuation. A stop-loss price of $49 or $50 would be more appropriate; this price is 7 to 10 percent below the current market price.