Just like the Limit Order, this is another form of trade with a different set of limitations. A Stop Loss Sell order is a conditional sell order that will only execute if the price of the stock reaches a target price (set by the seller) or lower. For example, say you bought Apple at $100 and they are currently trading at $104. I could set a Stop Loss order at $101. This means that once the price of Apple starts to dip and hits $101, my order becomes an order to sell. This should limit any losses I could take on my profits. If it sells at $101, then I still made a profit of $1 per share.
Setting a stop-loss order for 10% below the price you paid for the stock will limit your loss to 10%. This strategy allows investors to determine their loss limit in advance, preventing emotional decision-making. It’s also a great idea to use a stop order before you leave for holidays or enter a situation in which you will be unable to watch your stocks for an extended period of time.