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What is Stop Loss?

Stop loss is a way that could prevent your hard-earned money from draining beyond a certain point.

Traders need to be on their toes for quick entry and exits as the market volatility can hit them badly.

This is where stop loss comes into play.

Stop loss is an advance order to sell an asset when it reaches a particular price point.

Consider this example. If you bought a particular stock at Rs 100 and want to limit the loss to Rs 90, you can place an order in the system to sell the shares as soon as it reaches Rs 90.

This system automatically sells the shares once the market price falls below the threshold limit. Therefore, traders are not required to remain present on their trading platform when the markets are declining.

It is very important that traders and investors alike should trade and invest with strict stop losses to stay in the game.

One of the main disadvantages of using stop loss is that it could get activated by short-term fluctuation. Setting a 10% stop loss order on a stock that fluctuates 15% in a week may lead to a loss on commission generated from it.

However, it is an effective tool and can offer a significant advantage when used effectively and after proper analysis of the stock fluctuation.

Setting a stop loss is the secret to intraday trading. Many traders don't use stop losses and more often than not, they commit large amounts of capital in a single trade. In such situations, a single bad trade takes a big bite out of their trading capital which is hard to earn back.

That is why to make consistent profits in intraday trading, you need to follow a sound trading strategy and keep stop losses.

Check out this trading strategy that guarantees you never lose money with the use of stop loss.

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