Q:

What are some stop-loss trading strategies?

A:

Quick Answer

Stop-loss trading strategies most often involve placing an order that automatically sells a losing position to limit downside risk, according to Investopedia, but traders also use trailing stop orders to guarantee profits for a winning position. Usually a trader places a stop-loss order below the price she paid for a security to limit her potential losses. In the trailing stop scenario, the trader places a stop-loss order above the price she paid but a percentage below the security's current price.

Continue Reading

Full Answer

Jason Van Bergen of Investopedia recommends a loss-limit system that limits downside risk by placing stop-loss orders at a level that would represent at most a 2-percent loss of the total equity in a trader's account. This prevents a single losing position from diminishing a large portion of the account's value. Van Bergen also recommends using a similar strategy for an entire trading account, limiting monthly losses to 6 percent and closing all positions at that point.

Steve Sjuggerud of Stansberry Research recommends using a trailing stop strategy of selling profitable positions at a level that is 25-percent off of their high values. Thus, a trader who bought a stock for $50 that went up to $100 would sell the stock if it went back down to $75, ensuring at least some gains on the position.

Learn more about Investing

Related Questions

Explore