Trading can be very rewarding but it’s important to remember that the financial markets are volatile and risky. For that reason, you should practice some responsible trading techniques to help protect your money. The most important of these is the stop-loss order or stop limit (we call it ‘auto-close’ on Stryk).
What’s a stop-loss?
A stop-loss order is a tool that automatically closes your position if it drops below a certain figure or percentage.
For example, let’s say you buy Tesla stock at $100 and set a stop limit at $80. If the trade goes the wrong way, your position will automatically be closed out at $80 so you don’t lose too much money.
You can also set it as a percentage. For example, you could set a stop-loss at 10% below your buy price. In this case, your Tesla position would automatically close 10% lower at $90.
Lock in your profits
You can also use the auto-close feature to lock in profits if your trade is moving in the right direction.
Let’s say you were right about Tesla stock and it moves up from $100 to $120. If you don’t want to close the trade yet, you can now set an auto-close at your original entry point of $100 so you won’t lose money. Or you could set the stop order at $110 so you lock in the $10 profit.
Why you should always set a stop-loss
A stop-loss ensures that you never lose too much money from one trade. Markets are incredibly volatile and unpredictable, and even the best traders in the world don’t know exactly which way the market will go with 100% certainty.
For that reason, it’s important to set a stop-loss so you don’t lose your entire position.
There’s a common saying in the trading world: ‘cut your losers and let your winners run.’ In other words, don’t hold on to a losing position which can be mentally exhausting and drain your capital.
Losses are part of trading but it’s important to be disciplined about them and limit them using the tools available on Stryk. This way, you never lose all your money and you can move on to the next opportunity. Protecting your capital is the number one rule in trading!
More safe trading tips
A few other useful tips to make sure you practice safe trading.
1. Only trade with money you can afford to lose.
2. Create a trading plan and stick to it.
3. Take regular breaks to avoid burning out or trading on emotions.
4. Be extremely disciplined.
Trading the markets can be exciting and rewarding but it’s always important to practice responsible trading.