#StopLossStrategies

Key Tips

• Always define your risk before entering a trade.

• Stick to your strategy—don’t move your stop on a whim.

• Combine stop-losses with proper position sizing to manage risk effectively.

1. Fixed Stop-Loss

This involves placing a stop-loss at a set price level or percentage.

Example: Buy a stock at $100 with a stop-loss at $95 to limit loss to $5 per share.

• Pros: Simple to implement.

• Cons: May trigger prematurely due to market volatility.

2. Trailing Stop-Loss

A trailing stop moves with the market price. If the price goes up, the stop adjusts upward; if it falls, it stays.

• Example: 5% trailing stop on a $100 stock means the stop is at $95, but if the stock rises to $110, the stop moves to $104.50.

• Pros: Locks in profits while limiting downside.

• Cons: May still get stopped out during short-term fluctuations.

3. Volatility-Based Stop-Loss

Uses market volatility to determine where to place the stop. The more volatile the asset, the wider the stop.

• Example: Use the Average True Range (ATR) to calculate how far the price typically moves and set your stop based on that.

• Pros: Adapts to market conditions.

• Cons: Requires technical analysis knowledge.

4. Time-Based Stop-Loss

Exit a trade after a specific period if it hasn’t moved as expected, regardless of price.

• Pros: Helps avoid being stuck in stagnant trades.

• Cons: Doesn’t account for sudden moves just after the time limit.

5. Mental Stop-Loss

You monitor the trade and decide manually when to exit.

• Pros: Flexibility.

• Cons: Emotion can cloud judgment, especially under pressure