Stop Loss and how does it work

I understand the principle of apply stop loss in a stop entry order. But is stop loss also applied on limit order and if so how does it work?

Hope everyone has a great start of the week😊

Hi, there is the same principles if you use buy limit order your stop loss is below this order if you use sell limit order, your stop loss will be above sell limit order. Regards Greg

Thank you very much

I assume you’re asking about a “stop-limit” order?

A stop-limit order triggers the submission of a limit order, once the price reaches, or breaks through, a specified stop price.

Think of the “stop” part as the trigger price to activate an order. And the “limit” part specifies at what price you want to be filled.

Basically, a stop-limit order ensures you exit at the price you wanted (or better).

You should be aware of gap risk though.

This is when the price reaches your stop but the market is moving so fast that your limit order can’t be filled so your trade stays open and your unrealized loss continues to increase.

For example, GBP/USD is currently trading at 1.25000 and you go long. You have a stop-limit order of 1.24500 and 1.24500.

This means that if price falls to 1.24500 (the trigger price), you want to exit (“sell”) at a limit price of 1.24500.

All of a sudden, Austin Powers takes over the UK government and forces a hard Brexit before the sun rises.

GBP/USD immediately gaps down to 1.23000 on the news.

Since your stop price was reached, your limit order is activated.

But since the price is now down at 1.23000, this is where your order can be filled.

You thought your max loss would only be 50 pips but due to massive slippage, your actual realized loss was 100 pips.

It stops you at a certain price to limit your losses.

So is it correct for me to say that if I’m placing a buy limit order I would place the take profit below the entry price and the stop loss above the entry price.
However, if I’m placing a buy stop order I would place the take profit above the entry line and the stop loss below the entry line.

No, in both cases you are placing a buy order so the TP will always be a higher price and SL a lower price and vice versa for Sell orders, be it limit or stop. Remember the TP and SL only come into effect once the order is triggered. With a buy limit you place the buy order below the current price expecting it to bounce. With a buy stop it would be above the price expecting it to keep going once triggered. Your TP or SL can’t triggered until the entry is triggered. Hope that explains it.

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Yeah it did thank you so much for the explanation

Stop loss is an approach that lets you select a point up to which you can witness a loss. It is an important asset and would help you to avoid big losses that you can’t afford. It can be considered as the trigger price that activates an order and ensures you exit at a particular price that you wanted.

It refers to the order placed with a broker to buy or sell once the stock reaches a certain price.The purpose of a stop-loss is to limit the loss of the investor on a position.For instance , a trader who purchases shares of stock at $30/share might enter a stop-loss order to sell his shares at $20/share.If the stock price drops to $20 the order shall be executed thus closing out the trade.

I have been trading with the proper use of the stop loss and this is the very reason i am making use of them to control my losses.