Risk Management & Stop Orders
Effective risk management is essential for protecting trading capital and reducing exposure to large losses. While no method removes all risk, using tools like stop-loss orders and trailing stops can help you define — and limit — potential downside.
Stop-Loss Orders
Set a fixed exit price to automatically sell if a position moves against you. Useful for swing, day, and long-term trades to control downside risk.
Trailing Stop-Loss
Follows price upward by a set amount or percentage. Locks in gains if price reverses while allowing profits to run during favorable moves.
Stop-Limit Orders
Triggers a limit sell once a stop price is reached. Gives control over the sell price, but may not execute if the market moves past your limit quickly.
Why Use a Stop?
Stops help define risk per trade, reduce emotional decision-making, and preserve capital for future opportunities.
Risk to Capital
Many traders risk no more than 1–2% of their account per trade. This approach helps avoid catastrophic losses and supports long-term growth.
Important Limitations
Stop orders generally do not execute in pre-market or after-hours trading. Large gaps or illiquid conditions can result in execution at prices worse than expected.
Disclaimer: This information is provided for educational purposes only and does not constitute investment advice. Trading involves risk, including the potential loss of capital. Past performance does not guarantee future results.