What is a Stop Loss

What is a stop loss?

Its a really simple concept.

Pros: prevents small losses from turning into huge losses.

Cons: limits profits.

When day trading, most traders use a stop loss order to exit the position if it goes against them.

Let's draw an example:

Suppose an investor makes a lump sum purchase of 1000 shares of GOOG at $300.

That's a $300,000 investment. When you do not DCA into an investment, you are subject to market timing risks. Say this was the top, or you purchased this a couple days before earnings, or you failed to see an upcoming dividend date.

A week later you find the same GOOG shares are trading at $200.

Now your invested capital is $300,000 but the market value of your securities is $200,000 on paper… and you're stuck holding the bag until the stock recovers.

This is where a Stop Loss comes into play.

Professionals have a set stop loss strategy before they enter the trade. For smaller accounts, usually that is 1–2% of the total portfolio value.

So with a portfolio of $300,000, at 2% your stop loss is $6,000.

Your stop loss should be at 294. That way, if the security goes against you, you're out only $6,000, not $100,000.

You can utilize our calculator based on account size and risk you want to take: https://bossman.co/calculators/position