stop loss

Q: Trader X buys stock ABC at $3.00. X sets a stop loss at $2.80. The following day, stock ABC opens at $2.65. Does it get sold?

A: You obviously do not want to stay in the market for an unlimited amount of time if your capital is limited. A stop or limit order tells your broker you dislike the current price, and you want the price to move up or down before you buy or sell.

Setting a stop loss point is probably the most important rule a trader needs. Share trading is a game of chance, and it's only natural to hold on to losing trades. Using stop losses will minimise risk that you will sink with the ship and lose all your capital.

Aside from hard stops, many traders find using an ATR (average true range) stop efficient. The average true range is a moving average (14-days) that measures volatility over time, but not price direction. When using ATR stops, the stop length (usually 14) is marked by the average true range percentage.

For reasonably smooth trading, you should create and consistently follow a set of rules. One of these rules is setting up stop loss or exit points. Stop loss during trading is an option. Most traders always use stop loss points, while others never use them for certain reasons. While these reasons are legitimate, reasons for using stop losses are more important.

Before the market takes you to the cleaners, you use a stop loss order. As the term states, stop loss is the trading exit point used to limit the amount of loss. Say you want a stock price to move upwards. If the price drops too low, you will want to get out of there and stop trading.

A stop loss is a price at which an investor or a day trader would exit the trade to minimise losses on a trade gone sour. The stop loss is best decided determines ahead of time before the trade is imitated.

In the money management calculator, there is an option to enable the profit target.