What is Stop Loss and How to Use it in Trading? Understand with Examples
How to utilise a stop loss and what it is: Unlike investing, trading involves making short-term purchases and sales of assets, which involves a great deal of emotion. An individual's investment decisions may be influenced by emotions including fear, greed, rage, and disappointment. This exposes a person to unwarranted market risks and may lead to a substantial monetary loss. A person should practise self-control over these emotions through trading with discipline. Keeping stop-loss and targets constant is a straightforward technique for someone to practise self-control and resist giving in to their emotions.
Sell Stop Market Order
It is an order that is placed with a stop price lower than the current market price. Traders use this order to protect themselves from incurring a loss when purchasing a stock.
When the stocks you purchased fall to the level of your stop loss, the target order is activated, and your long position is exited at the available price.
Let's look at an example of a sell stop order:
Assume Mr. Nithin purchased 1,000 shares of company X at a price of Rs 100 per share. He has also set a stop loss of Rs 90.
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