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The benefit of a stop-loss order in trading or investing is to help limit potential losses and manage risk. Here's a breakdown of its key benefits:
1. Limits Losses Automatically
A stop-loss order triggers the sale of a security when it reaches a certain price, helping you avoid larger losses if the market moves against you.
2. Takes Emotion Out of Decisions
It prevents emotional decision-making (like panic selling or holding onto a losing position too long) by setting a clear exit point ahead of time.
3. Protects Profits (Trailing Stop-Loss)
A trailing stop-loss adjusts as the price moves in your favor, locking in gains while still protecting against downside.
4. Allows for Passive Management
Once a stop-loss is in place, you don’t have to monitor your positions constantly—ideal for busy investors or traders.
5. Improves Trading Discipline
Encourages a more structured and rule-based approach to trading, which can lead to better long-term results.