Today we will talk about a topic that is considered by many, one of the concepts that everyone should learn when they start in the world of exchanging, since knowing its definition, what it is used for and how to place it is a tool that can tip the balance in your favor.
But what is stop loss?
To begin with, let’s define what is the stop loss, and this is nothing more than the level of pressure at which the operation will be closed if it develops against me, that is, it will close automatically at a level that we can predefine before entering the operation.
Another way to visualize it is to see it as a type of stock market order that is activated once the price has reached a certain price, it is a kind of insurance, for example, suppose you bought a stock a few months ago for 6 dollars and today the price is for 8 dollars.
If you place a stop misfortune at the $7 line, it means that the moment the stock falls again, the sell order will be automatically triggered. In short, it is an automatic sell order with a limit that we can determine.
In addition to this functional definition of stop misfortune or stop loss, it also has a more relevant function, that is to say, more profound, and that is that it must be placed in a place where our unique thought of exchanging will no longer be fulfilled.
if the price reaches that point, it means that our thought is wrong, taking into account this point, it is also important to know that the stop misfortune, behaves in a certain way and it will always depend on the temporality at which it is working.
Since it is not the same to make operations in a 15 minutes chart, in which the stop misfortune must be placed below or above the resistance support, relevant of 15 minutes, then in a daily chart or in an operation that will last a standard of weeks or even a month.
For the second case, the stop must be much wider and must take as reference the daily or even weekly resistances or supports, therefore, those stop misfortune child much wider.
The stop misfortune must always be adapted to the temporality in which we are working since the stop misfortune is an intrinsic element to the order, either buy or sell, and that will allow us to take action with respect to losses if they were to occur and on an acceptable scale.
When our thought of exchanging is no longer valid and according to a risk that we can predefine, that is basically the stop misfortune.
How important is it to use a stop loss?
Explaining the foremost we can notice the importance of the stop misfortune tool, to cut the losses, as to give us indications also about our criterion is correct or not, so that the operation is profitable.
Therefore, we can recommend that you use this strategy of stop misfortune in your operations in order to predetermine a margin in which you avoid being harmed in your operations.