BPOI - FAST TRACK TRADING ACADEMY

WHY USE A STOPLOSS

KEY TAKEAWAYS

Most investors can benefit from implementing a stop-loss order.

A stop-loss is designed to limit an investor's loss on a security position that makes an unfavorable move.

One key advantage of using a stop-loss order is you don't need to monitor your holdings daily.

A disadvantage is that a short-term price fluctuation could activate the stop and trigger an unnecessary sale.

A stop-loss order is an order placed with a broker to buy or sell a specific stock once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position

What Is a Stop-Loss Order?

A stop-loss order is an order placed with a broker to buy or sell a specific stock once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position. For example, setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%. Suppose you just purchased Microsoft (MSFT) at $20 per share. Right after buying the stock, you enter a stop-loss order for $18. If the stock falls below $18, your shares will then be sold at the prevailing market price.

Stop-limit orders are similar to stop-loss orders. However, as their name states, there is a limit on the price at which they will execute. There are then two prices specified in a stop-limit order: the stop price, which will convert the order to a sell order, and the limit price. Instead of the order becoming a market order to sell, the sell order becomes a limit order that will only execute at the limit price (or better).

Advantages of the Stop-Loss Order

The most important benefit of a stop-loss order is that it costs nothing to implement. Your regular commission is charged only once the stop-loss price has been reached and the stock must be sold. One way to think of a stop-loss order is as a free insurance policy.

An additional benefit of a stop-loss order is that it allows decision-making to be free from any emotional influences. People tend to "fall in love" with stocks. For example, they may maintain the false belief that if they give a stock another chance, it will come around. In actuality, this delay may only cause losses to mount.

inally, it's important to realize that stop-loss orders do not guarantee you'll make money in the stock market; you still have to make intelligent investment decisions. If you don't, you'll lose just as much money as you would without a stop-loss (only at a much slower rate).

Stop-Loss Orders Are Also a Way to Lock In Profits

Stop-loss orders are traditionally thought of as a way to prevent losses. However, another use of this tool is to lock in profits. In this case, sometimes stop-loss orders are referred to as a "trailing stop." Here, the stop-loss order is set at a percentage level below the current market price (not the price at which you bought it). The price of the stop-loss adjusts as the stock price fluctuates. It's important to keep in mind that if a stock goes up, you have an unrealized gain; you don't have the cash in hand until you sell. Using a trailing stop allows you to let profits run, while, at the same time, guaranteeing at least some realized capital gain.

The main disadvantage is that a short-term fluctuation in a stock's price could activate the stop price. The key is picking a stop-loss percentage that allows a stock to fluctuate day-to-day, while also preventing as much downside risk as possible. Setting a 5% stop-loss order on a stock that has a history of fluctuating 10% or more in a week may not be the best strategy. You'll most likely just lose money on the commission generated from the execution of your stop-loss order.

There are no hard-and-fast rules for the level at which stops should be placed; it totally depends on your individual investing style. An active trader might use a 5% level, while a long-term investor might choose 15% or more.

When trading, you use a stop-loss order to overcome the unreliability of indicators, as well as your own emotional response to losses. A stop-loss order is an order you give your broker to exit a trade if it goes against you by some amount. For a buyer, the stop-loss order is a sell order. For a seller, it’s a buy order.

Enter your stop-loss order at the same time you enter the position. In fact, you need to know the stop in order to calculate how big a position to take in the first place, if you’re using any risk-management rule.

Technical traders have developed many stop-loss principles. Each concept is either a fixed trading rule or a self-adjusting one. Stops relate to indicators, money, or time, and often these three don’t line up neatly to give you an easy decision. You have to choose the type of stop that works best for you.

https://www.dummies.com/personal-finance/investing/technical-analysis/how-to-use-trading-stop-loss-orders/

The 2 percent stop rule

The 2 percent rule states that you should stop a loss when it reaches 2 percent of starting equity. The 2 percent rule is an example of a money stop, which names the amount of money you’re willing to lose in a single trade.

What is a Stop Loss?

A stop-loss order is an order that automatically closes a losing position once the price hits the pre-specified level.

In most cases, it’s a better option to place a stop-loss order than to have a “mental stop.” Stop-loss orders never sleep, they always follow the market and will close your trade almost guaranteed at the pre-specified price, preventing heavy losses on a losing position.

Stop-losses prevent large and uncontrollable losses in volatile trades. If you’re not using stop-losses, it’s only a matter of time when a large losing position will get out of control and wipe out most of your trading profits, eventually even your entire account!

If you’re serious about staying in the game in the long run and growing your trading account, it’s necessary to use stop-loss orders in every single trade you’re taking. That’s the first rule of this article – Always use stop-losses!

Stop-losses also play a major role in risk management. Depending on their stop-loss, traders are calculating what position size to take, how much money to risk on a single trade, how much they’re risking on any single dollar they’re making, and much more. 

https://mytradingskills.com/stop-loss-trading



https://www.youtube.com/watch?v=1ohBdvp8CoU

SETTING PROFIT TARGETS VIDEO TUTORIAL