Understanding the market is an individual skill, and will always come down to your personal bias. It takes discipline to become an advanced trader, and several years of experience to avoid making rookie mistakes. Stop Loss Orders are an entirely new ballgame and can make or break your entire portfolio. By learning the ins and outs of the game early, your success rate will become much better.
Understanding Stop Loss Orders
Stop loss orders force trades to execute when the share price matches your set price point. Think of it as a macro intended to complete a trade when the best possible share price is available. Similar methods are used at Angel Broking, and are a standard across the entire industry.
When you use a stop loss order correctly, it will eliminate a lot of the user error that plagues beginner investors. That includes buying at too high a price or getting too cautious with your losses. When you want to retain maximum gains, a stop loss combined with intelligent trading can be a powerful all in one weapon. A stop loss won’t manipulate the market in the same way as going fully hands-on. But its strength is solely in putting you in the correct position 24/7 when it comes to trading.
Using the Advantages
There are no risks associated with a stop-loss order. A zero-cost implementation is not something you run across a lot in the stock market. Use this to your advantage when needing to buy large amounts of stock at once. With that in mind, think about what type of investor you want to be.
A value investor, growth investor, and active trader will have different pros and cons associated with stop loss orders. Preventing excessive losses requires knowing which bracket your portfolio is in. If your strategy is solid, then the use of stop loss should mirror that success. If the addition of stop loss orders changes the very fundamentals of your trading strategy, then it becomes a useless system. A buy and hold investor will find that stop loss orders are not a viable strategy, even if it minimizes risks.
Preventing losses in the stock market is an entire game on its own. When used right, it is a clever way to lock in profits. This is also known as taking money off of the table and is something that only seasoned traders know how to do. With stop loss in effect, you have an advantage since it forces you into ‘walking away’ while profits are still logical. It’s not just about reducing risk, it’s about a strategy that creates mature trading habits that benefit you long-term.
An effective stop loss order handles its magic in the background. Once set up, you should never have to micromanage this strategy. Almost all investing types can benefit from this type of order, but there is still a thinking process required for optimization. If you believe in insurance policies, then a stop loss order is a match made in heaven.