To be a great trader you always need an exit plan in order to limit your risk on a trade. A stop-loss order in day trading can be the solution whenever a trade goes against you. It will automatically exit your trade after it reaches a certain price level.
The stop-loss order basically caps your risk at 10 pips per lot traded. However, using a stop-loss order can be more complicated than other orders. There are few types of stop-loss orders with its own pros and cons.
Regular and Worst Case
Commonly, there are two ways of using stop-loss orders. The first one is the regular stop-loss, traders can use it every time they exit a trade. So, he sets a price level on each trade. That price level represents the price where they want to exit before they lose the trade.
Second, the trader exits their trade manually when the opportunities arise and conditions change. But, the trader also set a worst-case stop-loss order to limit losses whenever a manual exit is not possible.
Stop Loss Market Order
A stop-loss market order is the most common stop-loss order used by traders. Whenever the price of an asset reaches your stop-loss limit, then your broker will automatically send a market order to close the position. That order sends at the current price.
Yet, with the fast-moving market conditions, the price when you exit can be different from the expected price. That called slippage. A slippage can bring a worse price possible.
Also read: Some Characteristics of Professional Traders that You Must Know!
Stop Loss Limit Order
On the other hand, with this order, your broker will wend a limit order automatically when the price of an asset reaches your stop-loss price. Unlike the stop loss market order, which closes at the current price, the stop-limit order will only close at the stop loss price or better.
Therefore, this helps you avoid the possible slippage.
