Benefits of Stop Loss ordersThere is debate on whether to use a stop loss order on your trades. Some people believe that stop orders will get you out too early leaving profits on the table. Others say that the loss prevention it provides far outweighs the possibility of getting out too early.
I believe that every trade should have a stop loss order on it. This is especially true if you factor in such things like market crashes’. I know no one likes to think of the market as crashing. I have even heard people talk as if market crashes were unusual circumstances. No, they happen every couple years, crashes are natural to the market and all traders must be prepared for them. I have seen fundamentally strong up trending stocks fall 15% or 20% in a single day. In cases like that it would be much better to place a stop that gets you out when the stock losses 5% then to not and have a 20% loss (and if the market gaps down the loss can be even higher). Stops are designed to protect your capital. If you let your losses run wild you can end up losing a huge chunk of your account. Remember when trading preserving your capital always comes first. You can ride an up trending stock all the way up to the top as long as it doesn’t hit your stop. If it hits your stop you’re out. It does not matter that you believe that this stock is going to the moon; you simply cannot afford to let the stock pull back too far and take away your profits on the trade, or even put you in the negative. Most traders will put there stop below a trend line or a moving average if they are buying stocks. If you are shorting you may want to put your stop above the trend line or above the moving average. The important thing is that you have an exit planed on all trades. Have A Great Story About This Topic?Do you have a great story about this? Share it!
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