What Is a Stop-Loss?

A stop-loss is a predetermined price level of an asset at which a trade is automatically closed to limit financial losses on that position.

Instead of monitoring trades in real-time around the clock, traders can set these levels to activate automatic selling without constant market supervision.

Stop-loss orders are applied exclusively to open positions.

Types of Stop-Losses

1. Conservative Stop-Loss

2. Aggressive Stop-Loss

•Conservative Stop-Losses are placed beyond highs or lows that have interacted with liquidity or tested an imbalance.

What does “interacting with liquidity” mean?

This refers to cases where one extreme (high or low) breaks another extreme.

•Aggressive Stop-Losses are placed closer than conservative ones, reducing the stop-loss distance and increasing the risk-to-reward ratio. However, aggressive stop-losses often lead to losing trades since the chosen level might not always be justified.

Key Considerations

Always assess whether your stop-loss is placed correctly. Ask yourself:

• Is a reduced stop-loss worth the added stress?

• Could it lead to unnecessary potential losses in the future?

Smart and justified placement of stop-losses is crucial for successful trading.