#StopLossStrategies What is a stop-loss?
A stop-loss is a type of order that instructs a broker to sell a security once it drops to a predetermined price, called the stop price. This helps protect traders from significant losses if the market moves unfavorably.
Common types of stop-loss strategies:
1. Fixed price stop-loss – Triggers a sale when the asset reaches a specific price.
2. Percentage-based stop-loss – Activates when the asset drops by a set percentage from the entry price.
3. Trailing stop-loss – Moves the stop price in line with favorable market movements, locking in gains while managing downside risk.
Advantages of using stop-losses:
Helps contain losses
Enhances overall risk management
Encourages discipline and adherence to a trading plan
Important considerations:
A stop price set too close might lead to premature exits.
A stop price set too far may fail to prevent large losses.
Market volatility and liquidity can affect the reliability of stop-loss execution.