A stop-loss orders is an advanced trade order that can easily be placed with most brokerages. A stop loss and profit target can be used to manage risk in stock trading, intraday trading, and share trading.
Stop Loss orders are a crucial tool for traders. It is difficult for one trader to keep track of multiple deals on different shares, commodities, currencies and indices. We all know that global markets are open 24/7. Many instruments can be extremely volatile, and prices can change dramatically in just a few hours or minutes. The Stop Loss Orders are a simple solution for investors who need to closely monitor changes and protect trader’s accounts.
Many traders are convinced that Stop Loss Orders are not the best solution. If they aren’t used properly, they can limit potential profits and effectively close a deal too quickly.
This is the best way of minimizing the risk you might face when trading. A stop loss is defined as a price or point beyond which the stock’s current value will rise. In that case, you must reverse your previous position. Keep in mind that stop loss orders instruct your broker to sell the stock when it reaches a specific price. Stop loss is a way to exit the stock before it drops further. It also indicates how much loss you are willing and able to absorb.
To illustrate the theory behind stop-loss, consider that if stock falls below a key support level traders will often sell their shares as quickly as possible.
Profit target, on the other hand, is the price you must sell a stock to make a profit. This happens when there is a limited upside to the risks. You sell the profit-making shares quickly, and you hold onto the losing shares or stocks for a longer time in the hope they will rebound in the future.