#StopLossStrategies A stop-loss strategy is a critical risk management tool used to protect capital during market downturns by automatically exiting losing trades at predetermined levels. Here’s a breakdown of several effective stop-loss strategies, along with examples of how they can help minimize losses:

1. Percentage-Based Stop-Loss

Strategy: Set a stop-loss at a fixed percentage below the purchase price (commonly 5%–10%).

Example:

You purchase Apple stock at $180. You place a 7% stop-loss at $167.40.

If the price drops to that level, your position is sold automatically, limiting your loss to 7%.

Benefit: You cap your downside while allowing upside to grow freely.

2. Volatility-Based Stop-Loss (ATR Method)

Strategy: Use the Average True Range (ATR) to set stops based on an asset’s volatility.

For example, a stop could be 1.5x the ATR below your entry price.

Example:

If Tesla’s ATR is $10 and the stock is trading at $250, you might set your stop at $235 (250 - 1.5×10).

Benefit: Helps avoid getting stopped out by normal price fluctuations.

3. Technical Stop-Loss

Strategy: Place stops below key technical levels like support zones, moving averages, or trendlines.

Example:

You buy an ETF at $100, and there’s a strong support at $95. You place your stop at $94.

If the ETF breaks the support, you exit, assuming a trend reversal.

Benefit: Aligns stop-losses with market psychology and chart signals.

4. Time-Based Stop

Strategy: Exit a trade if it doesn’t reach a target or move as expected within a specific time frame.

Example:

You enter a short-term breakout trade expecting a 5% move in a week. If the price stalls after a week, you exit to redeploy capital.

Benefit: Avoids capital stagnation in unproductive trades.

How These Helped During Downturns:

Example from 2022 Tech Selloff:

In early 2022, many high-growth tech stocks plunged.

By applying a 10% stop-loss on high-volatility names like Roku or Shopify, many traders limited drawdowns instead of riding losses down 60%–80%.