How do you smartly protect your capital?

In the trading world, profit is important... but preserving capital is even more important. This is where the importance of using Stop Loss strategies comes in, which are essential tools for any professional or beginner trader looking to manage risks.

What is a Stop Loss order?

It is an automatic order that is triggered when the price reaches a predetermined point, automatically closing the position to minimize losses.

Example: You bought a share at $50 and set the stop loss at $45. If the price drops to $45, the position automatically closes, protecting you from larger losses.

The most important Stop Loss strategies:

1. Fixed Percentage Stop

Set a specific percentage of capital as a maximum loss – such as 2% of the account.

2. Technical Stop

Relies on technical analysis such as breaking support or resistance levels or trend lines.

3. Trailing Stop

Automatically moves with the price in your favor, protecting profits when prices rise and limiting losses when they fall.

4. Time-Based Stop

Closes the position if the target is not achieved within a specified time frame, to avoid freezing or hesitation in the market.

Why is using a Stop Loss necessary?

Controlling losses before they escalate.