When you are looking to reduce the risks in stock trading stop loss orders are the best options. Not all traders have the time to sit and watch the market closely for price movements. There might also be situations where you have bought a stock but then you are in a situation where you might be away from trading for quite a long time. For all such instances placing a stop loss order would be the best thing to do. When you place a stop loss order the order would be placed automatically when the falling price reaches a set limit. This would prevent or ‘stop’ the further losses and thus help you keep a control on the losses incurred.
Stop loss orders and their benefits
There is no guarantee about when the market would get volatile and when it would stabilize. If you are looking to minimize losses and keep it within your affordable limit then stop-loss orders are indispensable. You should just make sure that you identify the apt stop loss limits.
There are many traders who take up more than one trade at a time. The diversity could be in terms of the assets chosen or even the markets being traded in. For all such traders, it would be difficult to keep track of all the trades at the same time while also keeping a check on the losses. Stop loss orders are the perfect answers for this.
Stop loss orders are easier to understand and execute.
Given that this is an automated order, you would not have to worry about sudden surges leading to major losses. The instant where the stop loss value is reached the order would automatically be placed.
Use the stop-loss orders wisely
After hour trading is something you should never ignore. There are many who make huge profits after the market closing hours. There could be price gaps that are created due to the aftermarket trading instances. This might not occur too often but when it does, it can lead to the order not being placed even after the stock has grazed the set price.
Does the broker charge you extra? Because some do charge an additional fee for stop-loss orders and this is often a hidden clause. So when you sign up with a brokerage clearly understand about the conditions, if any, for stop loss orders. This would ensure losing money later while placing stop loss limits.
If you are a day trader or an active trader who keeps watching the market constantly then the stop loss order might not always be relevant. Use this as your last resort if you have to give the trading process a break. Otherwise, it would be a good idea to use real-time movements to make on the spot decisions during a falling trend.
Watch the graph to identify a stop loss value that is likely to occur. There are a few traders who set very precise values which might not be met at all. So setting a reasonable value based on the historical data would be a better option.