When one is day trading, there is a huge risk of the trend going against the decisions and can incur huge losses. The day trader can use the stop loss order strategy at a certain level of losses in number, and when the trend of losses or downward trend reaches this point, the trade is closed automatically to avoid any more losses. It is not a compulsion to use the stop-losses trading strategy and is a personal choice, but it eventually reduces the risk of higher loss when there is no expectancy that the trend shall go upward at the end of the day. Suppose a stop-loss order point is set at the Rs. 70 per stock, which is priced at Rs. 100; if the trend of losses reaches the point where the price is about to go below Rs. 70, the trade is automatically closed or exited to avoid any more losses. Meaning, the trader is risking Rs. 30 as loss per stock, and the stop-loss point or threshold never changes on its own despite the trend changes. There is another type of stop-loss order known as a trailing stop-loss order. In such a strategy, the threshold point is set, and above which, if the losses increase, it can execute itself and bring the trader out of the trade. But unlike the stop-loss strategy, it is not fixed on a certain number and changes as the trend goes upward or downward to ensure the risk is minimal. |
