Setting a Stop Loss

Planning a level at which a stop loss will trigger is part of position planning; however, due to how critical this step is, it deserves its own callout.

Stop-loss orders, as you have learned in previous lessons, is a common order type designed to trigger at a specific price point, in order to prevent extensive losses from occurring.

Typically, stop losses are set at the time a position is opened, below the entry point of the position. Due to this, some loss will occur; however, it will prevent any unexpected crashes from wiping out capital further.

Stop losses can also be used as part of a more in-depth strategy that not only prevents risk but maximizes profits. By moving stop losses up or down after a position is in profit, it can secure any profits generated up until that point.

Stop-loss levels can be chosen depending on support or resistance, and how much a trader decides to risk.

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