Tag: Stop loss order

All Stop loss order related articles are found here. Educative, informative and written clearly.

  • Stop-loss First, Then Consider The Entry

    Stop-loss First, Then Consider The Entry

    Stop-loss First, Then Consider The Entry
    In stock trading, the essential part is to move quickly in and out of the position to profit more.

    Guy Avtalyon

    Everyone who even thinks about trading must understand the importance of stop-loss and why the Traders-Paradise team likes to say stop-loss first. 

    The stop-loss is one of the simplest tools from any trader’s toolkit. This order is connected to the stock’s movement, no matter if the fundamentals for the company have changed. The stop-loss first,  because if you use it you’ll have a greater chance to outperform the market. Let’s explain this. When the price of the stock goes down, the stock becomes more volatile, which means more risk. 

    Correlations between stocks and the market increase more when markets are dropping than when they are growing. So, the portfolio risk rises, and therefore diversification impact reduces. Increased volatility and higher risk, can expose stop-loss order as extremely important in risk exposure control. The gain could be potentially made by reducing the risk and getting a higher risk-adjusted return.
    Using stop-loss strategies you can reduce your emotional reactions while trading, and overcome the volatile market. So, the saying “stop-loss first” covers many situations when it is beneficial and we’ll show you some of them.

    Why stop-loss is the first consideration

    Stop-loss is the primary guarantee for profiting in the stock market. When you set your stop-loss order you’ll avoid risk, protect your principal, and survive the market volatility. It’s like the insurance premium.
    Risk control is the most important. For example, you just learned to ride a motorbike. What you have to know as a must?  You’ll have to know how to control the speed of falling. You’ll be safer.
    But when it comes to stop-loss orders, not every trader is confident where to set this order. Some even avoid thinking about it. Let us explain something. The stock market is a risky one, while you have one winning trade you might have up to ten losing trades. Don’t worry, that’s normal. But you cannot depend on good luck or count on it. What do you need? Skills and capacity to profit consistently. Otherwise, the stock market will dump you out. 

    Why is stop-loss important?

    One of the reasons to use stop-loss is because you trade with limited capital. That’s the rule, no matter if you are the richest trader in the world. Limited capital is required due to the necessity to protect your whole capital from losses. It is possible only if you use a stop-loss order. In other words, you must know what the maximum losses you can take per trade, per day, week, or month. That is trading discipline. You can maintain it only if you set a stop-loss order for each of your trades.

    Moreover, if you consider a stop-loss first, before your entry point, you’ll be able to profit faster and reach your financial goals. In stock trading, you don’t want to hold stock for a long time, and you’ll want to sell them. But if the desired price isn’t reached,  you’ll need to close the losing position as fast as possible and move onto another trade. Of course, you’ll have to compensate for your losing trade elsewhere. That to be said, in stock trading the essential part is to move quickly in and out of the position to profit more. Move your money quickly and with profit, that’s the point. But if you do it randomly you’ll be faced with losses. You have to ensure your trades. How to do that? By using stop-loss first, then you can think about new entries. Also, the bounce backs will be easier in case you have losses. The math can confirm that.

    For example, it is easier for $1000 to fall to $800, but a lot more difficult for $800 to bounce back to $1000. This is a loss of 20%. To compensate for this loss you’ll need about 25% appreciation and come back to the initial capital. But even after a 100% bounce, the stock will be back to its buying price. That’s why you need to use stop-loss orders. If you wait there is a chance for momentum to go more against you.

    What does stop-loss determine 

    In trading, using a stop-loss order is important to overcome the imperfection of indicators. You have to exit a trade if it goes against you. If you’re a buyer, your stop-loss order will be a sell order. Consequently, if you’re a seller your stop-loss order will be a buy order.
    If you’re a buyer, the stop-loss order is a sell order. And vice versa, if you’re a seller, it’s a buy order. For example, if you set your stop-loss order at 3%, you’re actually setting the amount of money you’re prepared to lose per trade.
    Stop-loss relates to indicators, money, or time.  It’s up to you to choose what type of stops you want to use. For instance, you’re buying a stock at $50 because the indicators you use are showing that for this particular stock potential gain could be $100. This means the stock price could reach $150. Your initial stop could be at $25 which is 50% of your initial capital and to get a chance to make $100. Here we come to the risk-reward ratio. In this case, it would be 100:25 which is 4:1. 

    In short, it determines how big a position to take.

    Why to use stop-loss first?

    To avoid the concentration of positions

    As a trader, you’ll run the risk if you extend your exposure excessively. For example, if you keep holding onto positions or average them, then the concentration can occur in your picked stocks.
    For example, you bought a stock at $50 and if it goes down to $45, you might want to average your position. You’ll want that to reduce the cost of holding, for instance. But if the stock price continues to drop, you might be motivated to average your position again. So what could happen? You’ll fall into the loop. You’ll repeat this mistake, and repeat again and again in an attempt to reduce the cost of holding. The better choice would be to use a stop-loss order at the level of the first decline and cut your position. Why would you like to keep a few positions and end up overexposed to their cumulative risks?

    Getting higher leverage  

    In stock, trading leverage is important because it provides you to trade with margin. For example, you put in a margin of $100.000 into your trading account. But you want to trade a stock whose current price is $1.800. So, you could buy about 55 shares. But your broker allows you 4 times more leverage because the company is highly liquid and you now can open positions up to $400.000. Instead of 55 shares, you can buy 220 because it’s the cover order. Let’s assume that the support level for this stock is at $1.750 and you set your stop-loss at $1.700. Let’s calculate your trading risk.

    220 x (1.750 – 1.700) = $11.000

    Since you have a margin of $100.000 in your account, the cover order reduces the risk. Yes, but only if you plan a stop-loss first.

    Advantages of this order

    If you count a stop-loss first, you’ll be able to cut your losses and you’ll be able to protect your trades against bigger losses when the stock price drops sharply. Further, the stop-loss will be automatically triggered if the stock price moves to a certain price. Moreover, you can maintain the risk-reward ratio. For example, you are willing to take a 3% or 5% or 10% risk to get a particular profit. A stop-loss order will help you to achieve that. One of the advantages is that you’ll be able to make trading decisions without emotions and despite the market noise. Also, the stop-loss will help you to execute your trades based on your trading strategy and to stick with it. 

    Disadvantages of using a stop-loss 

    Nothing is 100% sure in the stock trading so even the stop-loss has some drawbacks. For example, you set a limit order and also, you set a stop-loss order, to buy a stock on a particular date. What if your stock opens at a lower price (gap-down) during the pre-opening session? Well, your stop loss will never be triggered. You will end up with losses. Here is a possible scenario. You set a stop-loss at $25, but the stock opens on a gap-down at $23. The stock price didn’t reach your stop-loss so your sell order will not be achieved. 

    Also, a stop-loss can be triggered by short-term fluctuations. For example, the stock price first fell to $24 but then bounced and Increased to $35. But you set the stop-loss at $25 and your holdings will be traded automatically as that price is reached.
    When you calculate where to place a stop-loss order examine what was the range of the historical fluctuation for that stock. For example, you will not place a stop-loss at 3% for the stock with a daily fluctuation of 6%.

    If you want to be a profitable trader, you’ll need to plan every single action. Just like you know the buying price, you must know where to set a stop-loss first and take a profit level. If you don’t do this well, the whole process might end up in big losses. Also, poor stop-loss orders can cause them. The stock trading history is full of both great and ugly stories, so many ups and downs, winning trades and failures.
    Learn stop-loss first, then consider your entry! That’s the whole wisdom.

  • Trading Mistakes and How to Avoid Them

    Trading Mistakes and How to Avoid Them

    Trading Mistakes and How to Avoid Them
    If you have losing trades it is possible you have too many trading mistakes. Recognizing mistakes is half of the battle. The other half is how to avoid them. 

    Trading mistakes are common both for traders and investors, for the novice and experienced traders. Even though traders and investors practice different styles of trading, they often make the same trading mistakes. Some of the mistakes are more costly for investors, some for traders. For both kinds of market participants, it is essential to understand these common trading mistakes and avoid them. Think about bad trades as a process of learning and after you collect a significant number of them you’ll be more experienced and able to perform better trades. But this process can be shorter if you have an upfront understanding of where trading mistakes could arise. 

    That could give you a chance to react correctly and quickly enough to protect your investment portfolio. 

    Here are some trading mistakes that happen to both experienced and novice traders. These suggestions could help you to recognize them and give you a chance to avoid or correct them. So you should be able to gather the profits!

    Trading mistakes that traders shouldn’t do when trading

    Never risk a huge amount of your capital or going all-in. We all have a great expectation to earn a huge amount of money but one of the trading mistakes is putting all capital into a single trade and expect that could provide you great profits. How is that possible if every single trader, when asked, knows about the 1% rule. That means you should never put more than 1% of your capital into one trade. This is one of the common trading mistakes because traders constantly try to gain it all back. Mostly without a risk management trading plan. But even if you have a trading plan, sometimes you’ll be pushed to ignore it. You could be motivated to take a large trade which usually you wouldn’t. Don’t do that, try to resist. Stay stick to your risk management trading plan. The temptation can be a very bad companion in stock trading.

    Even if you think you are ready for a big portion in a single trade. Trust us, you don’t want to jump into the deep end. Especially if you are not skilled enough. Going all-in may cause unpredictable damages, financial and emotional, so great that you may decide to give up the stock trading forever. 

    The much better approach is to trade gradually at regular intervals and slowly increasing the amount per trade. In this kind of approach, you have two benefits: you won’t put all investment capital at risk and you’ll remove emotions when deciding when to buy a stock. 

    Not having a trading plan is a great mistake in trading stocks

    Among trading mistakes, this particular is maybe the most dangerous. If you don’t have a trading plan how will you know when to enter the trade or exit the trade. Skilled traders get into a trade with an outlined plan. They know their precise entry and exit points, how much capital to invest in the single trade, and what is the highest loss they want to take.

    Novice traders usually don’t have a trading plan before they start trading. Even if they have a trading plan, beginners could be more apt to turn out of the plan and take more risks and reverse the course totally.

    For example, they enter the trade with the belief that the stock price will rise shortly after they enter the position. That isn’t going to happen! But this fact is known to experienced traders, beginners don’t know that. And what happens the next is the trade is going against them. But most of them will not exit the position, they will hold in the hope that the price will go up. And the price continues to fall more and more but they don’t want to sell the stock, they don’t want to take the loss and end up losing everything. That is one of the most dangerous trading mistakes. 

    Further, even if they found a great entry point and the price starts to rise. Honestly, it could be a matter of luck, not knowledge. What do beginners do? They become greedy. Instead of selling stock and taking a profit, they hold the position. Very soon, the trade turns against them, and a winning trade shifts into a losing trade.

    Shorting stocks too early 

    If you short the stock too early it is more likely you’ll be destroyed on your shorts. Everything that flew always landed. This is especially true of stock trading and pumps and dumps. 

    For example, you notice a stock in the early stage of a pump. You are happy to buy and drive along as it increases. But at some point, it starts to drop, and you may profit by selling short. But when is that moment? When you have to go short? The timing is extremely important. What if you sell too soon? How to recognize that exact moment for short selling? First, you have to find the top on the stock. That means you have to recognize the resistance level. That is the point where buyers are leaving, but also the point where the sellers appear and begin to take over the stock.

    Short selling is dangerous anyway and only experienced trades should use it. If you practice this strategy or want to, be careful. Without proper knowledge and experience, you’ll jump into one of the biggest trading mistakes.

    Use stop-loss orders to avoid trading mistakes

    Cutting losses is a very serious issue. If you don’t cut your losses quickly you could lose everything. This mistake apparently takes most of the money. Avoiding to admit that we’re sometimes wrong, we are actually admitting we’re human beings. Nothing is wrong with that. People are doing that all the time. Sometimes it can be good. But not in trading stocks. 

    The main problem with trading and you cannot find many people that would like to admit that, is that there is no possibility to be correct on your trades 100%. The best traders are correct under 80%. How do they manage to not blow up their accounts? Simply, they know when they are wrong, they recognize that and admit that. When wrong trade occurs just get out fast. Why will you wait? To make more losses? No one would like that. Just admit you are wrong and exit the trade while you still have a chance to reduce losses. 

    But you must decide about your risk before you enter a trade. You have to know your risk to reward ratio and how much you are comfortable to risk.

    When you identify what you’re ready to risk, enter the trade. But that is not the end. 

    Set a stop-loss order 

    You have to set the stop loss. For some traders, it sounds unnatural to enter the winning trade and promptly set stop-loss order. We have one question for them. Is it natural to lose all capital invested? And, yes, there is a possibility to lose everything without setting a stop loss. In this way, you’ll avoid making huge losses to your account. 

    Never neglect stop-loss orders. That will prevent you from extreme losses and lock in profit when you have winners. You have to set a stop loss for every single trade.

    You might think you don’t need this order while you are sitting in front of your computer all the time. But you don’t have that single one trade to monitor, sooner or later you’ll have more of them. It’s almost impossible to monitor several trades at the same time. Changes are speedy and it could happen that you don’t notice the stock is losing support. In that situation, everyone would like to get out as fast as possible. The stock price could fall a lot faster than you are able to set your sell order in. And what did happen? All your profits are wiped in a second. By setting stop-loss orders at the moment when the trade is filled. 

    Bottom line

    Trading stocks is not an easy job. It takes discipline, time, and knowledge. Some traders can’t handle it and gave up. Also, there is one thing you must know before entering this marvelous world, the most important part of trading is preparation to execute it.

    You cannot find a lot of people out there to help you figure out what trading mistakes to avoid. We pointed several but there is much more. To be prepared to avoid them, you have to learn and not be greedy. 

    As we said, trading isn’t easy but can be very profitable if performed properly. It’s okay to be wrong from time to time, but if you are wrong all the time you’ll never become a successful trader. Just admit your trading mistakes, examine what went wrong, and continue with success. While trading, your emotions must be under control. Okay, some level of fear is favorable, it can protect you from meaningless and harmful moves. But you have to be honest with yourselves and admit when you made mistakes. To remember them better, write it down in the trading journal. That will make things easier in the future.

  • Trailing Stop Loss Definition and Examples

    Trailing Stop Loss Definition and Examples

    3 min read

    Trailing Stop Loss Definition and Examples

    The trailing stop loss may be practiced with stock, options, and futures exchanges that support regular stop-loss orders. It is a variety of stop-loss order. A trailing stop-loss order is executed when the price of the trading asset drops by the trailing value which can be expressed in percentage or currency amount. 

    For example, you might place a trailing stop order to sell your stock with a trailing stop loss of 4%. When the stock dropped 4% from its nearest high the trailing stop order will be executed.

    For example, assume that ABC stock is in its uptrend and hits $100 per share. If you placed a trailing stop loss of 4% it would be triggered when the price drops to $96 or below. Hence, your trailing stop loss at 96%, the sell order at $96 would be a market order. Instead, you can set a trailing stop limit which would provide you to gain a specified price placed in advance.

    Also, instead of placing percentages you may enter a trailing stop loss in currency. It is more favorable. Let’s do some math.

    Let’s say, ABC shares increase to $120, a $4 trailing stop would trigger at $116, which is a 3,3 % drop. If you entered a 4% trailing stop, it wouldn’t trigger until the shares fell 4% to $115.
    \

    The mistakes about using a trailing stop

    A typical mistake is to set a trailing stop too close to the current price. For example, 1% or 2% trailing stop loss. Most stock prices are changing by at least a few cents per minute. If you set the trailing stop loss too tied to the entry it will be stopped out before any significant price moves occurred. 

    The best way is to set a trailing stop distance enough from the current price. If you keep in mind that that the market regularly fluctuates inside a 10 cent span, you would like to set it a bit far from that amount. But be aware, if you set it more from that range because it could happen that you never reach the placed point. The consequence is that the trailing stop could be invalidated and never executed.

    The point of using the trailing stop loss is to get you out of the trade if there is a high possibility of the price changing and destroying your profit on your trade. 

    Trailing stops are useful because they secure in profit when the price moves in our beneficial. The disadvantage is that sometimes they get us out of a trade when the price isn’t really changing, but simply pulling back a little. A good option to a trailing stop loss is to apply a profit target, have that in your mind.

    How to move a trailing stop loss 

    It is easy to find a lot of brokers that provide this type of orders. It’s up to you to choose how much space you want to in your trade. Think twice would you like to set it in percentages or currencies (you have both examples above). When you confirm the order it will move as the market moves because that is the nature of trailing stops: to move as the prices move. You can set it automatically or manually.

    Bottom line

    Traders use different systems to improve their profits and diminish the losses. One of these methods is the trailing stop order. It allows you to define the circumstances that will trigger an order to exit your position. It safeguards your trade against unexpected downturns.

    No matter if you are trading stocks, bonds or whatever, you must have a solid exit strategy. Moreover, you must have it before you buy the position. We already wrote about emotional trading. A good exit strategy will allow you to diminish fears. Let’s say your exit strategy is to wait for the price of your stocks to drop by 15%. You’ll be able to avoid trading in a panic if your stocks drop by 10%. That is the main purpose of applying a trailing stops and other stop-loss orders, to give you a plan to realize your exit strategy.

    Don’t miss this: Trading With Success – A FULL guide for beginners

  • Stop-loss Order Means How Much Are You Willing to Lose On a Trade

    Stop-loss Order Means How Much Are You Willing to Lose On a Trade

    Stop-Loss orders To Limit A Risk
    Stop-loss order is an easy and powerful tool when used properly. Find how to do that.

    By Guy Avtalyon

    Stop-Loss orders are suitable when conditions in the market get a bit out of control. If you never place the stop-loss order the risk potential is huge. You may lose everything. 

    The main characteristic of a stop-loss order is that it becomes a market order. It can happen when the price of your security is selling at or under the stop price. So, a stop-loss order is a great protection against falls in the value of your stock. Stock investing is risky, but you can control it and protect it with a stop-loss order. Wise investors always use stops. The others stay with losses. The stop-loss is an easy but powerful tool that will protect you when an unexpected turn in the market occurs.

    How does Stop-loss Order work?

    For example, you hold a stock of some company and it is currently trading at $30. But your stock is volatile and you place a stop-loss order at $20. If the price of your stock drop at or below $20, your order will become a market order and you’ll be able to sell your stock instantly at the best possible price.

    If you want to be a day trader, for example, you have to place a stop-loss order on your every trade. The stop-loss order will tell you how much you can lose on a trade. So, you have to know how to calculate your stop loss. You have to determine precisely where your stop-loss order will go.

    Basically, a stop-loss order is a method of investment risk management.

    A stop-loss order is when you define a particular step to be taken at a particular price. For example, you bought a stock at $50 and you placed a stop-loss order at $40. This means your stock will be sold when the price drop to $40. Of course, you may place the stop-loss order at any price. 

    But not all is ideal with this order.

    Stop-loss orders are static. They don’t move. Imagine the following situation. You set a stop-loss order at $40 but the stock price goes up at $80, which is much more than you bought it. In this case, when your stop-loss order is at $40 your protection is worthless. 

    How to calculate stop-loss?

    A stop-loss order is created to reduce your loss. For example, if you place a stop-loss order for 15% below the original purchase price, your potential loss will be limited to15%. For instance, you bought a stock at $100. What you have to do is to set a stop-loss immediately after buying and you set it at $85. This is important in case the price of your stock falls below $85. Your stop-loss will automatically be recognized as market price and even if the stock continues to fall, you will obtain your $85 per stock or the amount close to it.

    You may choose whatever percentage you want, all is up to you.

     

    Some advisors will tell you to set a stop-loss order at 10%. But if you think your stock is a good player you may decide to take more risk and set a stop-loss at 20, 30, or even 50%. For long-term investors, this may be a good solution, the bigger percentage will give space to the range and enough time to annulate the losses that can occur over time because they have a bigger investment horizon and have hope for a great return one day.

    But if you are a day trader just avoid big percentage, 10% of the initial price is quite a good solution to protect your trade.

    Defining a stop-loss order placing is all about targeting an individual risk potential. You should determine this price to limit loss. That’s the point.

    How to place stop-loss orders when trading

    Stop-loss orders are usually market orders, as we said. But if your stock doesn’t have a buyer at that price you may end with a lower price. That is slippage. 

    Stop-loss points shouldn’t be set at unplanned positions. Placing them is a strategy that should be based on your experience with different methods. This means you must have a trading plan. You have to know how to find the best way to enter the trade, how to control the risk, and how and when to exit the trade.

    If you are a beginner, just use a simple stop-loss strategy. That will give you the opportunity for the price to move in your benefit. Also, the simple stop-loss strategy will diminish your loss promptly if the price goes against you.

    Where to set stop-loss orders when buying

     

    One of the easiest ways is to set it below a swing low. A swing low happens when the price drops and then hops. That is the price support at some level.
    When you buy, the swing lows should be going upward. 

    Where to set a stop-loss order when selling

     

    Set it above a swing high. A swing high happens when the price grows and then drops. That is resistance.
    If you want short selling the swing highs should be going downward. 

    What is important with stop-loss orders

    There are several things you have to know about stop-loss orders.
    They are not suitable for dynamic traders and large chunks of stock because you can lose more in the long run.
    You must be sure that your stop-loss order has confirmation, never assume.

  • How to Use Stop Loss Order?

    How to Use Stop Loss Order?

    Stop Loss Order and How to Use It
    Use stop-loss orders whenever you enter a trade to limit the risk and avoid a potentially great loss

    By Guy Avtalyon

    A stop loss order is an order to sell a security when it reaches a given price. Put simply, the stop-loss sell order is designed to limit an investor’s loss on a particular stock. Stop-loss orders appear in four classes. But some brokers may offer products that vary in their structure and complexity. Some classes are more commonly used than others and dealers do not typically offer all classes of stop-loss orders.

    To some degree, each type of this order poises protection against the risk of “slippage” and the risk of an early exit from the position. Slippage points to the difference between the order level and the current trade price. It may be increased or decreased depending on the type of stop-loss order trader uses. All of these definitions fit the normal market conditions. Counterparties should ensure that they have an independent understanding of the parameters of normal market conditions. It is important for each currency market to effectively recognize risks during the abnormal market condition

    Why use Stop Loss Order

    When trading on an asset, investors are exposed to potentially high risk if the price moves towards a direction which is the opposite of the one they had anticipated. This could result in considerable losses in the investment unless action is taken to exit the non-profitable position as soon as possible. When the price moves in a direction that provides the current position profitable, a trader might want to close the position in the profits earned so far. But, the possibility of turning winning trades into losing positions is always present. Also, it could lead to abnormal losses. Stop Loss usually involving the prices at which a position was opened, and are frequently used by traders, as well as automated trading systems. Trading is almost exclusively conducted electronically through a computer.

    In addition to that, investors have replaced the broker with a platform for automated trading called algorithmic trading. There is a lot of proof that can confirm the increased algorithmic trades can decrease wrong price choices and reduce the balance of offer risk over different price levels of an asset correlated with the trades. These results show that algorithmic trading lowers the cost of trades and enhances the informativeness of quotes. Today more and more brokers use electronic trading platforms, and more individual investors opt for algorithmic trading. So this order is calculated for every trade in a few seconds.

    Take Profit

    Returns can be either absolute or relative. The price is within the price range x ∈ (L, b × L), or the investor, if x is the entering price, can simply set a constant I (proportional to the fluctuation we add), where x−I is the stop-loss price.

    The returns change over seasons and periods, according to the influences an asset undergoes as a result of outside or inside factors. The orders with stop loss and take profit, when activated, oppose the market trend (take profit) or intensify the movement (stop loss). They have great influence even over the liquidity during a flash crash. The use of stop-loss orders and take profit orders and the range of these orders reflect the risk-taking desire of the investor. Taking profit and stop-loss functions display the flexibility of profitability adjusted on each asset.

    The Stop Loss order protects the trader from holding a position that is not profitable for a long time. Contrary, that could result in big losses of capital. On the other hand, there is a distinction between the profits’ enhancement and risk reduction. The Stop Loss order has an influence on the fall of prices. In forex, the variance in exchange rates is faster when the prices hit levels at which Stop Loss order is usually set. Secondly, the influence of the Stop Loss order is bigger than the effect of the take profit order. It also helps the fast changes in prices by creating an opposite trend. Thirdly, the impact of stop-loss orders has an extended duration than that of the take profit orders.

    How Stop Loss order works

    Stop-loss orders work based on a trigger price. We can recognize two types of stop-loss orders: stop-loss limit (SL) and stop-loss market (SLM) orders.

    SL orders consist of a price plus trigger price. When the trigger price is reached, your Stop Loss order is triggered and a limit order is will be sent to the market. The limit order executes between your price and trigger price range only.

    For example, you buy a stock at $100 and place a sell stop-loss order with the price at $98 and trigger a price of $98.50. When the price of the stock reaches or goes below $98.50, your stop-loss order is triggered. A sell limit order with a limit price of $98 is sent to the exchange order queue. Since a limit order is executed at the best available price. If the price of the stock is at $98 or above, your sell limit order of price $98 will execute.

    Is possible a stop-loss order not work?

    Of course, it is possible.

    A sell limit order is sent to the exchange only when the sell stop-loss order is triggered. When the price of $98.50 is triggered, a sell limit order with a price of $98 is sent to the exchange order queue. But if the price of the stock falls below $98 before your order reaches the queue? The sell limit order will stay open and your stop-loss order will not be executed yet. This possible scenario can be overcome by a stop loss market order.

    The stop-loss market order consists of a trigger price. When the trigger price is touched or passed, your stop-loss market order is triggered and a market order is sent to the exchange. The market order is executed at the market price.

    For example, you buy a stock at $100 and place a sell stop loss market order with a trigger price of $98.50. When the price of the stock reaches or goes below $98.50, your stop loss market order is triggered. A sell market order is sent to the exchange order queue and will execute at whatever is the available market price. The point is that a market order always goes through and your stop-loss order will be executed at any moment happens.

    Stop Los orders do they work?

    These orders can also be used to lock in a profit. It’s important to understand that stop-loss orders are different from limit orders. Limit orders can be executed if you can buy, for example, stock at a specified price or more beneficial. What will happen when the markets are fast-moving. In that case, your stop-loss orders may not be filled precisely at the specified stop price level. But it will be filled reasonably close to the specified stop price. Traders should understand that in some extreme cases stop-loss orders may not provide much protection.

    The main goals of this order are to low the risk exposure and to make trading easier. Traders are urged to always use them whenever they enter a trade, in order to limit their risk and avoid a potentially catastrophic loss. Stop-loss orders help to make trading less risky when limiting the amount of capital at risk on any trade.

     

  • Stop Loss Order – What is It?

    Stop Loss Order – What is It?

    2 min read

    Stop Loss Order - What is It?
    A Stop Loss is a type of closing order to automatically close a trade once prices hit a specific level in the market, normally for a loss It is one of the most popular tools for traders to minimize their risk

    A Stop Loss order is automatic – so you don’t have to manually monitor your positions. This provides a certain level of control and comfort.

    Experienced traders will testify that one of the keys to achieving success in financial markets over the long term is prudent risk management. Utilizing a stop loss is one of the most popular ways for a trader to manage their risk, around the clock.

    What is a Stop Loss order?

    A stop loss is a type of closing order. It allows the trader to specify a specific level in the market where if prices were to hit. The trade would be closed out by systems automatically, typically for a loss. This is where the name Stop Loss appears because the order effectively stops your losses.

    In simple terms, Stop-Loss is an automatic order to buy or sell an instrument once its price reaches a specified level, commonly known as ‘the Stop Price’. The order is executed automatically, which saves you having to constantly monitor your deals. It also serves as protection from excessive losses.

    Stop Loss Order - What is It? 1

    When it comes to a market as volatile as a cryptocurrency, the hardest part is to reduce your losses. Many novice investors have quickly learned the importance of controlling losses. Some may have, sadly, had to learn it the hard way.

    A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. They are designed to limit an investor’s loss on a position in a security. Most investors associate a stop-loss order with a long position. But it can also protect a short position. In this case, the security gets bought if it trades above a defined price.

    How does a Stop Loss order work in practice?

    The concept of a stop loss is quite flexible in terms of application in practice. In fact, there are a variety of applications to the concept of stop loss. Firstly, you can use it to keep a check on the risk of your trading positions. This is the basic role of a stop loss. Secondly, you can also apply this concept when the stock price is rising and use the concept of stop-profit or trailing stop losses to constantly keep upping your targets with inbuilt risk management.

    The price at which a stop loss order is placed is a personal decision and depends on the trader’s risk tolerance. Traders should consider not setting their limit too low. Doing so would result in the orders getting filled too fast, even with normal market volatility. The price at which stop orders are placed should allow room for a currency pair to rebound in a favorable direction while providing protection from excessive loss.

    What this means is that stop loss is not meant to eliminate all risk. The price should be set far enough into the ”loss” territory or at a place from where a return to profitability for that trade seems unlikely. A Stop Loss helps to manage your risk and keep your losses to an acceptable and controlled minimum amount.

    How to set up a Stop Loss order

    Setting a Stop Loss order is very easy. When you open a deal, you will see an option to ‘Add Stop-Loss’. Simply choose an amount you are willing to lose on the specific deal. Alternatively, set an exact in which the deal will automatically close.

    The real challenge with Stop Loss is figuring out which rate to set, but with a bit of practice, you will discover that automatic orders are extremely useful.

    Do stop losses provide complete protection?

    They are one of the best ways to ensure your risk is managed and potential losses are kept to acceptable levels. Stop losses orders are great and can assist in a variety of ways including preserving your money, preventing your position to become worse or for guaranteeing profits. But they don’t provide 100% security.

    They protect your account against adverse market moves, but they cannot guarantee your position every time. If the market becomes suddenly volatile and gaps beyond your stop level it’s possible your position could be closed at a worse level than requested. This is known as price slippage.

    The advantages and disadvantages of the Stop Loss order

    Novices will just bump the keyboard and hope their money is still there tomorrow.  But not you. You’re ready to make some smooth love to the charts. Stop Loss order is an extremely important tool for traders. Experienced traders understand that Stop Loss orders are not a perfect solution. They should be used carefully because they can also limit potential profits by effectively closing a deal too soon.

    The advantages: Stop order offers protection from excessive losses and enables better control of your account. It helps monitor multiple deals. Stop order is executed automatically, at any time and it’s easy to implement. And allows you to decide what amount you are willing to risk.

    The disadvantages: Stop Loss order could result in deals closing too soon, hence limiting profit potential. Traders need to decide which rate to set, which could be tricky.

    The bottom line

    Having a losing position is certain, but you can control what you do when you are caught in that situation. The ultimate goal for online traders is to take advantage of price changes in order to profit. By carefully using Stop Loss order you can both minimize risks and maximize your profit potential.

    Risk Disclosure (read carefully!)