#StopLossStartegies

A stop-loss strategy is a risk management technique used in trading and investing to limit potential losses on a position. It involves setting a predetermined price level (called the stop-loss price) at which a position is automatically sold if the market moves against the trader or investor.

Explanation:

The idea behind a stop-loss is to protect capital and prevent emotions like fear or hope from influencing decisions. Here's how it works:

Trader buys a stock at $100.

They set a stop-loss order at $90.

If the stock price drops to $90, the order is triggered and the stock is sold.

This limits the trader’s loss to around 10%.

There are different types of stop-loss strategies:

Fixed stop-loss: A specific dollar or percentage amount below (or above, for short selling) the purchase price.

Trailing stop-loss: Adjusts as the asset price moves in your favor, locking in gains while still limiting losses.

Time-based stop-loss: Exit a trade if it doesn’t perform within a certain time frame.

Purpose:

Protects against large losses.

Helps enforce discipline.

Removes emotion from trading decisions.