What is stop loss?
Stop Loss is a tool used to set a certain level to automatically sell an asset when its price reaches a certain limit, with the aim of limiting losses.
Example: If you buy a cryptocurrency at $100 and set a stop loss at $90, the system will automatically sell the currency if the price drops to $90.
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The difference between a trader and an investor
Trader:
The trader works in the short term, such as hours or days.
It relies on trading strategies such as technical analysis and quick entry and exit.
It takes care of daily price fluctuations to make profits.
Using Stop Loss:
It is very essential for the trader as he works in a highly volatile environment, aiming to protect the capital from sudden negative movements.
Investor:
It works over the long term, such as months or years.
Focuses on the future value of assets based on the fundamentals of the project or company.
Tolerates market fluctuations and seeks gradual growth.
Using Stop Loss:
Not as common as the trader, but it can be useful to protect the portfolio from large crashes, especially in the event of unexpected changes in the market.
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Is stop loss more beneficial for a trader or an investor?
For traders:
Stop loss is very important because it protects capital and prevents big losses.
It helps the trader manage risks and ensure that he sticks to his strategic plan.
For the investor:
Stop loss may not always be necessary as it focuses on the long term.
An investor may prefer to buy more when the price falls (averaging cost strategy).
However, a stop loss may be useful in cases of a major market crash or when a project loses its fundamental value.
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Conclusion:
Stop loss is an essential tool for traders because it ensures that losses are minimized in fast and volatile times.
For investors, it is used with caution as part of a broader strategy to reduce risk without affecting long-term investment.