There are three types of orders used market, limit, and stop loss. A market order is an order to buy or sell a stock at the market’s current best available price. A market order typically confirms execution, but it does not promise a specified price. Market orders are optimal when the primary goal is to execute the trade immediately. A market order is generally appropriate when you think a stock is priced right or want an immediate purchase. Market orders should be placed during market hours. A stop-loss is a type of order used by traders to limit their loss or lock in their profit on a current position. Stop-loss orders are orders with directives to close out a position by buying or selling a security at the market when it reaches a certain price, known as the stop price.
They are different from stop-limit orders, which are orders to buy or sell at a precise price once the security’s price reaches a certain stop price. Stop-limit orders may not get executed, whereas a stop-loss order will always be executed. Many things can affect trade executions. Additional factors like volume and time can affect which order type to use. Before placing any trades, become familiar with the various ways you can control your order; that way you can get the results you are looking for. Mark Zuckerberg said, “The biggest risk is not taking any risk. In a world that’s changing quickly, the only strategy that is guaranteed to fail is not taking risks”.
Protection
It comes down to that everyone should want to protect their investment. Traders use stop-loss orders to limit their losses and protect their gains. By placing a stop-loss order, they can manage risk by exiting a position if the price for their stock starts moving in the direction opposite of the position they have taken. A stop-loss order becomes a market order to be completed at the next available market price if the price of the stock reaches the stop price. A stop-limit order also activates at the stop price, unless the limit order was set to execute at a specific price. The stop-loss order rejects the risk that a position won’t be closed out as the stock price continues to drop.
Both long-term and short-term traders can use stop-loss orders. Stop-loss helps traders be more disciplined and help take the emotions out of trading. This is because they eliminate the urge to monitor charts on a daily or hourly basis. It becomes a set it and forget it type mindset. Every investor should make stop-loss orders a part of their investment strategy. With the MK VIP program, I walk you through how to set alarms and show you how to place a stop loss. A strategy is imperative to have along with this tool, so you can be truly successful.
Volatility is another common tool for traders when setting stop-loss levels. An indicator such as the average true range gives traders an idea of how much the price typically moves over time. Traders can set up a stop-loss based on volatility by attempting to place a stop-loss outside the normal variations. This can be done without an indicator by measuring the typical price movements on a given day yourself, and then setting your stop-losses and profit targets based on your observations. Placing a stop-loss order is the same as placing any other type of order.
The Downside
A downside concern would be if the market was choppy during your trading day, and you placed a stop-loss order. You could have exited your existing positions early when it would have been in your best interest to remain in since the potential reversal corrected itself. Another downside would be if a stock price suddenly gaps below or above the stop price, the order would be triggered. This means the stock would be sold or bought at the next available price, even if the stock is trading away from your stop loss. Long-term traders can wait to recover from downturns, so although they can use stop-loss orders, they don’t have to.
Summary: Stop Loss Order
You have learned that traders should consider using stop-loss as a defensive tool whether the markets are in a period of high or low volatility. You learned the positives and negatives of stop-loss orders and that a trading strategy must be followed. We touched a little on market orders and limit orders so that you know all the options available to you. Technical tools alone won’t get you the results you need to enter trades. Initially, this all may seem like a lot to follow and keep up with. But the reality is you just need the right guidance. You need to focus on strategy first, but all these other tools are just there to simply make you as successful as possible.
My goal has always been to help as many day traders achieve their personal financial goals, whether they are novice traders or experienced traders. The MK VIP training has plenty of resources to help you get started on reaching your day trading goals. With my program, you can learn how to begin day trading, and you will be profitable for at least 80% if not more of your trades. You will have assistance the whole way through your training. After you graduate from the program, you have resources constantly at your disposal. I distribute articles daily to focus on different aspects of trading and more visuals to keep you constantly in the know. All your day trading needs are just one click away.
Learn More
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
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