How to Stop Loss Stock Trade

When trading, it is advisable to always enter a stop loss. A stop loss is an order to liquidate either all or part of a current position once a predetermined price bottom has been hit. The goal of the stop loss is to set a maximum loss level for a trade. Where to set the stop loss is up to the trader's discretion, but a popular point for long-term trades is 10 percent lower than the purchase price.

Things You'll Need

• Trading account
• Trading position

Instructions

1. Purchase a stock in your trading account, for example, 100 shares of XYZ at $85.

2. Calculate the stop loss point by subtracting 10 percent from the purchase price: $85 - $8.50 = $76.50.

3. Enter stop loss at 76.50. This can be done by either calling up the brokerage company of the account and telling them to set a stop loss for 100 shares of XYZ at 76.50, or by using the online order entry window for the account. (If you are using the online method, see Step 4.)

4. Enter either stop loss or stop in the online order entry window, followed by the stock symbol name, the number of shares and the price for the stop order. In our example, this last figure would be $76.50.

5. Watch the price movement of the stock and adjust the stop loss price if the stock rises in price. For our example, if the stock price rises to $100, the stop loss price will rise to $90 (10 percent less than $100).

Tips & Warnings

• Stop losses are available for both long and short positions. For a long position you would use a sell stop loss, and for a short position you will use a buy stop loss.