A Stop loss order means to buy above market with or sell below The order market is at a certain price.
This is an instruction to your broker to execute a trade at a specific level that is more unfavorable than the current market price .
In the picture above, blue dot is the current price.
Notice how the green line is above the current price. If you place a buy stop order here, in order for the order to be triggered, the current price must continue to rise .
Note how the red line is below the current price. If you place a sell stop order here, in order to trigger it, the current price must continue to fall .
A stop-loss order is the opposite of a limit order, which instructs your broker to buy or sell an asset at a specific price that is more favorable than the current price market price.
Stop-loss orders are typically used to get a trader out of a trade if the market moves against them.
Stop Loss Order Types
There are two types of stop-loss orders: Stop-loss order and Stop-loss pending order .
Stop loss order
A Stop Loss Order can be used to limit risk and automatically close a position once a certain level of loss is reached.
There are many types of stop loss orders, including basic stop loss, trailing stop loss, and guaranteed stop loss.
Stop pending orders
A Stop-loss order is used to take advantage of market trends by opening a long position when the market price rises to a certain level.
Or open a short position when the market price drops to a certain level.
Breakout traders can use them to ensure they don鈥檛 miss any opportunities to enter and exit trades when they are unable to monitor the market.
When the market reaches a specific price specified, the order sent to the broker becomes a market order. In volatile (or fast) markets, slippage can occur.
When should you use a stop loss order?
Using stop-loss orders is a great way to manage your positions without having to constantly monitor the market and appear at the exact moment of execution.
The key is to choose a stop-loss order level that allows for fluctuations in the price of your asset while still protecting you from downside risk.
When selecting a stop loss order level, it is important to realize that this does not guarantee execution .
If there are large fluctuations or gaps in the market, basic stop loss orders may cause slippage when opening and closing positions.
If your level is reached, your stop loss order will be executed at the best available market price, which may be completely different than the price you wanted .
If you choose to use a stop loss order and the market fluctuation is only temporary, you may lose potential profits.
For example, if you hold a long position and your stop loss order is closed, then the price rises again. 馃槶
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