There are several reasons why stop-loss should be used in your portfolio.

It is another function that many traders rely on. Since market volatility can occur at any time, unanticipated events occurring during the day without a stop loss may lead your portfolio to wipe out. Therefore, stop-loss is a tool that prevents the port from hitting zero.

What Is a Stop-Loss?

Stop-loss is an order to close a trade when specified circumstances are satisfied. It is designed to prevent large trading losses. Stop-loss orders are similar to pending orders with the broker. The broker will perform stop-loss orders even if the computer is turned off and the trading account is disconnected. If you do not have the time to constantly monitor the position, a stop-loss will prevent the capital from large fluctuations.

Reasons for Using Stop-Loss

Since we cannot predict how much we will lose in the future, stop-loss will assist in determining the risk and preventing excessive losses. Therefore, it is analogous to a frame for determining the maximum risk we can accept. 

Moreover, stop-loss enables us to concentrate and develop in trading. For instance, if you are trading forex with the Breakout technique and your stop-loss is struck frequently, it indicates that you placed it too narrowly. Otherwise, you may place a trade in the wrong position. Therefore, stop-loss functions as a reminder of the trade entry point.

 In fact, setting up an efficient stop loss during the early few trades is extremely difficult. Consequently, it is important to evaluate the performance of a trading system consistently. Moreover, you should determine if setting stop-loss in the trading strategy can effectively reduce risk and support the portfolio's long-term growth.

Nevertheless, before making a genuine trade, you can use each broker's demo account to practice and evaluate your trading strategy.

Conclusion

Stop loss is a technique used to reduce the danger of incurring excessive losses due to a trader's error. It should be determined before entering the order so that we may establish a loss point that we can tolerate. Furthermore, setting a stop loss can reduce the risk to zero by moving the stop loss position to the profit side, commonly known as profit locking. In trading, however, it is possible to alter the stop loss according to the circumstances to maximize the trader's trading potential. Moreover, traders should continue to study money management and risk management to enhance trading efficiency.

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