Stop loss is a critical risk management tool used by traders and investors to limit potential losses in the financial markets. In this blog post, we’ll delve into two popular types of stop loss orders: Primary Stop Loss and Trailing Stop Loss. Understanding these strategies can empower you to protect your investments and maximize your profits.

Primary Stop Loss:

Primary Stop Loss is a straightforward strategy where you set a specific price level to limit your potential losses. This predetermined price acts as a safety net, automatically triggering a market order to sell your asset when the market price hits or falls below the specified level.

Example:

Let’s say you purchase 100 shares of a stock at ₹500 per share. To protect your investment, you set a Primary Stop Loss at ₹480. If the stock price drops to or below ₹480, a market order is triggered, and your shares are sold to prevent further losses.

Trailing Stop Loss:

Trailing Stop Loss is a dynamic strategy that adjusts the stop loss level as the market price moves in a favorable direction. Instead of setting a fixed price, you specify a percentage or a fixed amount below the current market price. As the market price rises, the stop loss level automatically trails behind, ensuring that you lock in profits while protecting against potential downturns.

Example:

Imagine you buy 50 shares of a stock at ₹600 per share and set a Trailing Stop Loss at 5%. If the stock price increases to ₹630, the new stop loss level will be ₹598.50 (5% below ₹630). If the price continues to rise, the stop loss will keep trailing behind, always maintaining a 5% gap from the highest achieved price. However, if the stock price drops, the stop loss remains fixed until a new peak is reached.

conclusion:

Both Primary Stop Loss and Trailing Stop Loss are valuable tools for risk management in the world of investing. While Primary Stop Loss provides a fixed level of protection, Trailing Stop Loss adapts to market movements, allowing you to capitalize on upward trends while safeguarding your gains. Incorporating these strategies into your trading plan can help you navigate the volatile nature of financial markets more effectively.

share with your friends

Ultimate trading tricks for students to become 1%.