A Complete Understanding of Stop loss !!5 Important Points To Consider

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credit:learntotradethemarket

Loss is a word which dont sound good and puts lots of stress in mind.No body want to take loss.In financial markets also one has to take losses if securities is going against you.

Friends there is a great of controlling the losses that is by using stop loss .Lets understand in detail.

Introductory

  1. Stop loss means what??
  2. What are advantages of stop loss
  3. How to use trailing stops
  4. What are the disadvantages of using a stop-loss
  5. Conclusion phase

when we purchase shares or xyz  company ,we buy it on recommendations or ask somebody or by television channels or by media or may be by any other sources,but there is something we forget that is about our risk appetite and money management,apart from that too we forget to put stop-loss.When stop-loss is used correctly it can make lots of difference.This tool is available to everyone and has has access from everywhere in the globe.

Traders call it god of risk, Investor calls it life saver.Most investor and traders can benefit from it avoiding more on the position. Stop-loss is a direct item once it is activated you dont have to track it daily.There is function known as GTT once placed its valid for one year.

What Is a Stop-Loss Order?

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credit:PPSimpactmagzine

A stop-loss order is an type of order executed by us through a broker to buy or sell a specific stock once the stock reaches a certain price.

A stop-loss helps to limit an investor or trader loss on a security or securities,For example, placing a stop-loss order for 3% below the price at which you bought the stock will limit your loss to 3% thats the maximum anyone can loose om that particular position. Lets assume you purchased TESLA at 410$  per share. Right after buying the stock, you placed a stop-loss order for 370,the stock falls below 370$, your shares will get sold at the the market price on that time .

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    Advantages:

1) Stop loss is free item until its executed ,Broker will not charge anything for it.

3) Stoploss is available with every Broker across the globe
4) For an trader a stop will be differnt than an investor , there is no fixed aspect in stoploss ,its variable content
5) Risk comes with safety , money comes with risk assessment and risk control with using stoploss.
 How To Use Trailing Stops:
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Before jumping into Trailing Stops let understand first what is it.
Trailing stop-loss is a stop-loss type of order that can be altered as per the situations .Trailing stops are very useful if u are carrying heavy volume positions.
credit:chartink
credit:chartink
There is a concept called lock in profits , if u want to lock in profits then trailing stops are great alternative .Lets take a new example of eBay with current market price at 40 $ , suppose you set a trailing stop order for 10% below the current price, and the stock skyrockets to $50$within a month. Your trailing-stop order would then lock in at $27 per share {$50 – (10% x $40) = $46}. Because this is the worst price you would receive, even if the stock makes a wild move still u will be secured .Of course, keep in mind the stop-loss order is still a market order.

Disadvantages of  Stop loss Order:

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credit:capex.com

1)Sometimes small fluctuation can take u out

2)Need proper technical analysis vision before deciding about stop loss, random stop-losses maximum times dont work.

y.Commission gets  generated from the execution of your stop-loss order,brokers smiles.

Conclusion Phase

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credit:motilaloswal

A stop-loss order is kind of insurance tool and money manager, still many traders investors fail to use it with great efficiency. Traders and Investors even the Scalpers and Micro Scalpers  can use it with ease . Stop-loss means in easy understanding  insurance policy for your portfolio.