The stock market is where people can go from being poor to rich overnight. Sometimes it’s the opposite. If an individual plays well and knows the market well, it is the best way to make money sitting at home with technology such as a computer, laptop, or cell phone. It’s a place where only the most experienced people can lose their hard-earned money. There are many stock advisors that can offer advice in currency, commodity, and equity. Anyone can get tips from them if they have any difficulties while trading or investing in the market.
We live in an economy that is growing. Although we know how to use every resource, or how to use them to their full potential, we lose.
The stock market is the same. There are many ways to minimize losses and not completely eliminate them. To minimize losses, the most popular strategy is “STOPLOSS”.
As the name implies, STOPLOSS is used to limit loss to a specific level. Let’s find out how stop loss works. ?
A stop loss order is an order that the investor places with the broker in order to purchase or sell security at a certain price. Imagine that you purchase certain security in the expectation that future prices will rise. But what happens if they start to fall? You can only take a certain amount of loss if the price starts to fall. Although it is painful, minimizing our losses can lead to a smart intangible profit. When the price drops, you can set your stop loss to automatically sell the shares at the appropriate level. This price is often lower than the original price you purchased these stocks. You don’t need to keep an eye on the stock to reduce your losses. Both buy orders as well as short selling orders can be affected by stop loss orders.
While it is good to have a stop loss in place, it is even more important to have a proper stop loss. The stop loss should not be breached easily. There is no set formula to determine the right stop loss. Each stock is different and each stock has a different day’s volatility. Any analyst or investor will consider the stock volatility, support, and resistance when deciding the level of stop loss.
There are two common strategies to stop losing money while trading shares:
1. Trailing Stop Loss
2. Bracket Order
This strategy is known as trailing stop loss. It allows you to protect your profits at a specific level. Let’s say that an investor purchases a stock for Rs 100, and it rises to Rs 120. An investor can also set a trailing loss. A trailing stop loss can either be set at Rs 10 or at a percentage like 5%. When the stock drops below Rs 120, the Trailing Stop Loss will be activated. When the stock reaches Rs 110, or falls by 5% towards Rs 114 the Trailing Stop Loss will place a sell order. This will allow the investor to protect their profit at a set level.
The “bracket Order” is the second strategy we discussed. It’s inside a bracket so it protects both sides. Let’s take an example: An investor purchases a stock for Rs 100 and sets a Stop Loss of Rs 80. A Trailing Stop Loss of Rs 10 is set. An investor can replace the Trailing Stop Loss by a Limit Sell order. Once the stock price reaches a price of Rs 120, this order is executed. Investors can limit their risk by limiting the losses in their portfolios.
