All language subtitles for 3. What Exactly Is A Stop-Loss

So stop loss just in the name sounds good, does it?

It's going to help reduce our stop losses, which we want.

Right.

So let's figure out, well, what is this really all about and how do we use it?

So stop loss is actually a trading order and order that you place.

So the definition of it is is an order you put in place with your broker, your online broker, typically

to automatically exit a trade if it goes against you by a certain amount.

So let's think through that a little bit here.

So you've bought something and at the same time you're going to put in a stop loss that at a certain

level, if it goes the trade goes against cancer, it's going down in price.

You will automatically sell at that point and you can determine, you know, how far down you want to

do that.

And we have a lesson on that as far as how to actually set these things.

But basically, you're thinking about it's an automatic exit of a trade that you're setting up ahead

of time.

So the stop loss you input is an amount below the current market price you want.

People are buying it.

What you might be buying, especially if putting in a market order where you're buying at market price,

for example, and you place at the same time, you place your buy order.

So at the same time you're buying, you're putting in a stop loss that only gets executed and automatically

if certain conditions are met.

And why are you doing this?

It's part of the overall plan, right?

It's part of the plan to minimize losses is what it is, because sometimes these these things can turn

on you quickly.

And so you want to have some of those automated that can help you with that and really lock in their

profits if you've got a lot of profit off of trade and you want to kind of lock those in a little bit

with a stop loss order or to minimize losses right off the get go, but you're placing at the same time

that you place your buy order.

So if we look at this graphic here from Financial Express, kind of nice graphic, you can see where

the person's watching a trend on the left there that's going downward.

But then it turns around and he's looking at a place where where he's first pointing like, OK, that's

where I want to really kind of make sure I think that's going to go settle.

And I want to stop my losses there if I can.

Then he buys, right.

So he waits for the trend to develop.

And that's a good thing for the security and the trend.

The trend is your friend to develop and is buying there and then is placing a stop loss order at that

kind of that point just below the buy order.

So the idea is really buys there and it goes down pretty quickly.

He's got he's going to minimize the losses by having that stop loss order in.

As it turns out, in this graphic, the order keeps going up or the security keeps going up in the green

there.

And then if he leaves that stop loss order in place, it would come back down.

And let's say they haven't.

If he the person hasn't sold by the time on the far right there, then the stop loss order would be

automatically executed.

And you still have a loss in this example.

So really, what you'd want to do and you can do is you can actually move your stock losses as you make

more profits or as you have other rules and things around that once you reach your certain targets.

As far as profit maximization target might sold before your stop loss order is executed or or you adjust

your stop loss order upwards, you what you can do.

We'll talk about that a little bit later, but you can adjust that upwards so that your stop loss moves

kind of with your your as your security moves up in price, too.

So you're locking in some profits that way.

And when we get the market order type sectional, there's another thing called a stop limit order,

very similar to stop loss.

And we'll get into that at that point here later.

We have a whole section just on how to how to trade securities on the different types of orders from

market orders to shore to stop loss, stop limit, all that kind of stuff.

So we'll be learning about that.

But the key thing you want to take away from here now is that I'm able to minimise my losses on the

front end, but I can also adjusted to maximize my profits on the back end by adjusting the stop loss

order up.

So we might have some questions later, some frequently asked questions or executed around stop loss

orders.

So first, the question is, how often should I use a stop loss?

You should really use it every time.

I mean, every time the whole idea of trading is is you're trying to make profits and all that and you

don't want to have your losses go down on something unexpected happen to have your losses all of a sudden

go way through the floor right after you buy something.

So putting a stop loss, if it's never executed, is always a good idea.

You should really use it every time.

The exception on that might be a buy and hold or a long time hold.

Investors I'm just holding for a year or more, you know, then they might want to know.

The whole idea is that they're going to go through long down periods and have that security come back

up as the idea by basically using time on their side.

But if we're actively trading, we don't have that kind of time.

We don't want to hold something for two or three years if you're an active trader.

But a buy and hold person could could get away without using a stop loss.

But if you're an active trader, no.

Use it every time.

Do I have to use it?

Can I just sell when I feel like it, you know, just have a feeling or or use something like an indicator

and just feel like it and have it not be automatic.

And the answer is yes, you have to use to do use it every time.

And yes, you have to use it.

The reason for that is the stop loss, putting that in place takes emotion out of it.

Sometimes we get attached to a security, we're in denial.

We think it's going to come back and it doesn't.

And then we sell at a deeper loss than we maybe wanted to or intended to.

And we then we figure out that even though we've had some profitable trades, we've had some real bad

stinker trades because we didn't put a stop loss in place.

It takes timing out of it.

Right.

It's time to always, you know, takes the timing as far as time you spend, always watching it because

it's automated.

You don't have to be watching your security constantly all day long during the trading day.

You can just put the stop loss in there and then you can just it later as let's say, if you're hopefully

you're riding the trend and you're banking on some big profits, you can adjust upwards of that point

and it helps to get out fast out of a fast, big drops right where something unexpected happens.

And also the security's really dropping in price.

You're not watching it constantly.

It's hard to do that.

So you're so stop loss.

It's automatically take care of that order and sell and either minimize your losses or lock in again

and again.

It's all part of your plan, right?

It's all part of the plan, the training plan that you have.

And lastly, a frequent ask questions.

I'm worried that my stops will keep getting exercised all the time, particularly in a volatile market

where there might be whipsaws and things, where it's up and down, up and down and they're always being

executed.

And my trade never really has much time to really develop, you know, and that's OK.

That can happen.

Just adjust your stock levels to account for that.

Maybe you need to set a deeper loss level and be comfortable with that.

And in a trading of a very volatile security, if you're fine, you're not comfortable with that, then

you might want to look at securities that are less volatile in terms of, you know, going up and down

and maybe take a look at that trading indicator section around volatility.

Again, this would be a good time to review that if you're still wondering about where you might fit

with that.