How can I use stop-loss orders to protect my investments in the stock market?

Stop-loss orders are an effective way to protect your investments by automatically selling stocks when they reach a certain price. This prevents large losses and ensures that your investments are managed strategically, without emotional decision-making.

1. What is a Stop-Loss Order?

A stop-loss order is an instruction to sell a stock automatically when it reaches a predefined price, limiting potential losses.

For example, if you buy a stock at ₹600 and set a stop-loss at ₹550, your stock will be sold automatically if its price drops to ₹550, protecting you from further loss.

2. Types of Stop-Loss Orders

There are different types of stop-loss orders, each designed for specific trading strategies:

• Market Stop-Loss: Sells the stock at the best available price once the stop price is triggered.
• Limit Stop-Loss: Sells only at the stop price or better, but it may not execute if the price moves too fast.
• Trailing Stop-Loss: Adjusts automatically as the stock price moves up, locking in profits while limiting downside risks.

3. Benefits of Using Stop-Loss Orders

Stop-loss orders provide numerous benefits, making them a valuable tool for traders and investors:

• Reduces Risk: Automatically limits losses, preventing significant financial setbacks.
• Prevents Emotional Trading: Ensures that investment decisions are based on strategy, not panic or greed.
• Saves Time: You don’t have to monitor stock prices constantly.
• Improves Discipline: Encourages structured investing and risk management.

4. How to Set a Stop-Loss Order?

Setting a stop-loss order is a simple process:

1. Log into your trading platform.
2. Select the stock you want to protect with a stop-loss.
3. Choose the type of stop-loss order (market, limit, or trailing).
4. Enter the stop-loss price (trigger point where the stock will be sold).
5. Confirm and place the order.

You can always adjust or cancel the order before it gets executed.

Using stop-loss orders is a smart way to safeguard your investments in a volatile stock market. By setting a stop-loss at a strategic level, you can limit potential losses while allowing room for profit growth. Whether you're an active trader or a long-term investor, incorporating stop-loss orders into your strategy helps you stay disciplined and manage risks effectively.