Stop Loss Orders

10/13/2021 11:03 AM By Brian Casto

Let's Talk Strategies

 Investing Basics - Stop Loss Orders

To be profitable in your trading and investing, it is crucial that you know when you are wrong. A stop loss order is a risk management tool intended to get you out of a trade that is not working. 

Here is an example of a stop loss:

An investor has a thesis that stock XYZ (which is currently trading at $100) is likely to go to up to somewhere between $125 -$150.  But, if the stock sells off below $90, he believes his thesis is no longer valid.

The investor buys the stock at $100, then places a stop market order at $89.99. The stop market order will ensure that the stock is sold for a loss if stock XYZ trades below $90. If the stock doesn’t trade below $90, the order will never be triggered and the investor can exit at his desired target area as his thesis plays out.

Nobody likes to lock in a loss, but having a plan to do so when your ideas do not work, can save you from a potential disaster. 

Are you using stop losses on your investments?

Click below to share with your friends or colleagues

If you have questions or comments, please use the spaces below.

Get info about our Autotrading solution