Skip to main content

Importance of Stoploss in Trading


Here are ten reasons a Stop Loss is so important in trading:

  1. A stop loss defines your price risk by quantifying what price level you will exit a trade at. 
  2. A stop loss helps define your trade size. By knowing what price you are going to exit a losing trade you can set your position size based on your stop loss to define the size of your loss. 
  3. You can’t control how big your win will be or if your trade will hit your profit target but you can define the size of your loss by getting out at your stop loss price level. 
  4. A stop loss removes big losses from your trading strategy. 
  5. A stop loss frees up capital to move on to find winning trades. 
  6. You can save a lot of mental and emotional capital by getting out of a losing trade early. 
  7. The risk component of your risk/reward ratio is set by your stop loss and position size. Without a stop loss you can’t have a risk/reward ratio. 
  8. A stop loss caps your downside risk to a specific amount, this removes a lot of stress and the risk of ruin in one trade. 
  9. In Option plays the option hedge part of the play acts as a stop loss. 
  10. A stop loss is a way of forcing a trader to admit that they are wrong about a trade, it keeps the ego in check. 
Traders who trade without a Stoploss Eventually Stop Trading.

Comments

Neil said…
Nice article bro! Useful information!
please write also about trailing a stoploss bro!
16 May 2020 at 17:46
Sharma said…
Thanks for sharing this wonderful information .
16 May 2020 at 20:13
Post a Comment

Popular posts from this blog

Pre - Market Analysis (30th Jan 2022)

1. U.S Markets closed higher on Friday. 2. Right now , dow futures are lower. 3. Asian markets are mixed. 4. SGX Nifty is up 30-50 Points. 5. There's no point discussing Global markets today. 6. As we are dealing with our own local issues as of now. 7. The talk of the town is Adani Group. 8. Every stock Market participant during last 2 days have not spent as much time with their wife /gf /husband /bf as they have spent on researching Adani stocks. 9. They shouldn't have wasted so much time in research and should've spent their time with loved ones. 10. As Ultimately my Pre Market report would clear all. 11. Now , the Adani stock price has gone below the FPO price. 12. FPO price is in the range of 3100-3200 and stock price is around 2800  13. Who will subscribe to FPO when they can buy shares much cheaper from the Market? 14. Also over the weekend Adani has come up with a 450 page report addressing one by one the allegations made by Hindenberg.  15. I haven't
Post a Comment
Read more

Pre - Market Analysis (18th August 2022)

U.S Markets closed Flat Yesterday. Asian markets are mixed. SGX Nifty is close to 17940 right now. Yesterday markets broke out of 17900 and now are closer to 18000. 18000 is important as 18000 CE has the highest open interest. Highest amount of calls have been written for 18000 CE strike price. Plus round figures always act as psychological resistance too. Today is the weekly expiry and as of now the range is 17800 to 18000. 17800 is a strong support level and 18000 might act as resistance. Markets will gain steam once 18000 is taken out. Today could be a side-ways expiry. But nothing can be said as markets can always surprise you. IT Index has crossed 30k. Sensex yesterday hit a landmark of 60k. Sensex and Nifty both are now just 3% away from all time highs. So this isnt just a Bull Market , it's a raging Bull Market. India VIX closed below 18 yesterday. Bank Nifty is close to important levels of 40k. Once these important levels are taken out then we move towards all t
Post a Comment
Read more

Pre - Market Analysis (14th September 2022)

U.S Markets closed lower Yesterday. Dow Jones & S&P 500 crashed 4% each. Nasdaq crashed 5% Yesterday. SGX Nifty is indicating a 300 point massive gap down today  Asian markets are lower. Reason is the U.S Inflation data which got released yesterday. Inflation data arrived was at 8.3% . This Data was higher than the expected data. Market wasn't expecting Inflation data to be above 8%. But this data shocked the markets. Yesterday Dow futures were higher till Inflation data was announced. They were higher by 200 points. As soon as Inflation data got announced it spooked the markets  U.S VIX rose 15% Yesterday. Right now Dow futures are slightly higher. 17800 is a strong support for Nifty. It this holds we can expect fall to reduce. Fall shouldn't be drastic if Nifty holds 17800. Yesterday many traders had longs as Nifty closed above 18k. All these traders will be chopped off due to this gap down. Nifty might Trade between 17700 to 18000 today. stockmarketadviso
Post a Comment
Read more