Stop Loss Order
This type of order is slightly different from the earlier orders.
Because the earlier three orders are orders to get you into a trade, an entry.
Whereas a stop-loss order is to get you out of the trade.
It's an exit.
Let's say, you buy at support in anticipation the market will to continue trading higher and you have a stop loss order below support.
But what happens is that the market collapses lower.
If it hits your stop-loss level, you will be out of the trade for a loss.
This limits your downside.
Imagine if the market collapses all the way lower and you don't have a stop loss.
Your initial loss could have been bigger.
So, a stop loss order is simply a defensive mechanism to protect your capital if the market goes against you.
Cutting your losses means that you live to fight another day.
You don't blow up your entire trading account, and like I've said, it's a defensive measure.
The bad side is that the market could reverse back in your intended direction.
But I would rather get stopped out of my trade and get a small ant bite than get a big crocodile bite.
Here are the Pros and Cons:
Pros: Cut your losses by not blowing your entire account.
Cons: The market could reverse back in your direction.
With that said, let’s do quick summary…