One of the most important things in investing and trading is risk management.
As the name suggests, this type of order is used to prevent a trader from losing absurd amounts of money on a trade.
The general point of a stop loss for a trader is to exit out of a trade as soon as the market proves the trader wrong.
Stop Losses are preset triggers that will close out a position at a certain price point — usually to limit how much you might lose if the price action moves against you.
The purpose of a stop loss is to protect you if your trade idea doesn’t work out.
Setting stop losses can protect trades from becoming investments and investments from becoming headaches
Risk per trade: what percentage of total portfolio a trader is willing to lose per trade
Position size: number of units of an asset one purchases
Distance to stop loss from entry: Self-explanatory, you can even see it in the chart, it’s the red line.
What are the benefits and strategies of Stop Losses?
The benefits are that you can limit your loss, reduces stress and improves your lifestyle or even protect a profit to some degree. If you have a large number of positions or aren’t able to watch the market every minute of every day the automation provided by stop losses should alleviate some of the stress involved in trading. Making at least some profit, guaranteeing profits while you wait for the candlestick to grow even bigger (the green candlestick, of course).
A stop-loss strategy should always be developed within the context of your wider investment plan. Have a plan, write it down, read it every week to ensure you are in line with your plan and if necessary make adjustments.
Even the best trading strategy periodically gives false signals, and opening trades with these signals leads to losses. Stop-loss helps to reduce these losses to a minimum, which allows a trader to quickly compensate for the lost funds and again get a plus.
In Summary, Stop-loss is an important element of the trading system, it makes trading more secure and controlled. It can be difficult for a novice trader to understand all the nuances of placing a stop-loss immediately, so the best option would be to start with mastering the simplest techniques.
NB: this is not financial advice and I am not a financial advisor
Good luck! And see you soon!
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