How to Set Up a Stop‐loss Order
Learn the basics., Calculate the stop-loss price., Place a stop., Relax.
Step-by-Step Guide
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Step 1: Learn the basics.
A "stop-loss" is an order that you set up in your brokerage account to limit any losses when the stock market plunges.
It triggers a market sell order if the price of the stock sells below a certain level.
The assumption is that if the price is falling, it will likely continue to fall.
A stop-loss order limits, or stops, the amount you can lose.As another example, let's say you own a stock valued at $30 per share, and you would like to sell it if the price drops by 10% or more.
You issue a stop-loss order at $30 minus 10% or $27.
If (or when) the stock's price reaches $27, the stop-loss order is converted to a market order and the stock is sold at the next available price.You can set a time period for a stop-loss order, and if the stock is not sold by that time, then the order is canceled.
A day order is good until the close of of business on the same day it was placed.
A GTC order (good 'til cancelled) order is good for a longer period of time (such as 60 days), or may even have no expiration date.Using a GTC order can help you avoid having to renew a stop-loss order. -
Step 2: Calculate the stop-loss price.
Look at a chart to see daily ranges of a particular stock over a six month period to familiarize yourself with the stock's high and low points.
Set a stop-loss within 3% to 7% of the median (middle) trend line.
More information can be found on how to set a stop-loss in the book "Technical Analysis of Stock Trends" by Edwards and Magee., Go to the section of your online brokerage account where you can place a trade.
Instead of choosing a market order, choose a stop loss order.
Enter or scroll down to the price at which you would like to place a stop loss order., Once you've placed the stop order, your broker will watch the stock for you and execute a sale if the share price falls to the pre-selected point.
If your stock goes up or fails to move much at all, the stop order will have no effect. -
Step 3: Place a stop.
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Step 4: Relax.
Detailed Guide
A "stop-loss" is an order that you set up in your brokerage account to limit any losses when the stock market plunges.
It triggers a market sell order if the price of the stock sells below a certain level.
The assumption is that if the price is falling, it will likely continue to fall.
A stop-loss order limits, or stops, the amount you can lose.As another example, let's say you own a stock valued at $30 per share, and you would like to sell it if the price drops by 10% or more.
You issue a stop-loss order at $30 minus 10% or $27.
If (or when) the stock's price reaches $27, the stop-loss order is converted to a market order and the stock is sold at the next available price.You can set a time period for a stop-loss order, and if the stock is not sold by that time, then the order is canceled.
A day order is good until the close of of business on the same day it was placed.
A GTC order (good 'til cancelled) order is good for a longer period of time (such as 60 days), or may even have no expiration date.Using a GTC order can help you avoid having to renew a stop-loss order.
Look at a chart to see daily ranges of a particular stock over a six month period to familiarize yourself with the stock's high and low points.
Set a stop-loss within 3% to 7% of the median (middle) trend line.
More information can be found on how to set a stop-loss in the book "Technical Analysis of Stock Trends" by Edwards and Magee., Go to the section of your online brokerage account where you can place a trade.
Instead of choosing a market order, choose a stop loss order.
Enter or scroll down to the price at which you would like to place a stop loss order., Once you've placed the stop order, your broker will watch the stock for you and execute a sale if the share price falls to the pre-selected point.
If your stock goes up or fails to move much at all, the stop order will have no effect.
About the Author
Robert Kelly
A passionate writer with expertise in hobbies topics. Loves sharing practical knowledge.
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