Stop orders use an activation price to execute a trade at a certain, and often calculated price point. They can greatly help limit a traders loss when in a bad position. Stop-losses can be adaptive and executed through different order types. There are three main stop orders, stop market, stop limit, and trailing stop. PeakBot’s automated stock trading software takes advantage of these stop losses in order to keep your investments safe.
With a stop market order, the investor places a calculated price point that he/she believes is too low to continue holding the stock and wants to sell. Once this trigger price is reached, a market order is placed to sell the stock at the next available price. An investor can incur risk with a market order as the next available price may be lower than they intended.
With the stop limit the investor sets an activation price for the stop limit, as well as a limit price. With this order a falling stock will trigger the stop limit, and then the order will look to exit the position at the stop the limit price previously set by the investor. A disadvantage with a limit order occurs if the stock falls too quickly and your order may not be filled by the time the stock price falls below your limit price.
A trader can use a trailing stop to lock in profits or limit losses as the trade moves favorably. Instead of setting a specific activation price like stop market and stop limit orders, you can set your order to trail the price with a certain dollar amount or percentage from the current market price.
If a 10% trailing stop is added to a long position, a sell trade will be placed if the price drops 10% from its peak price after purchase. Trailing stops can become very adaptive and efficient through the use of algorithms and automation.
Profit targets are the opposite of stop-loss orders but are similar in many ways. A profit target is a predetermined price point in which an investor will exit a trade for a positive gain. Profit targets help reduce risk and lock in profits.
Like stop-losses, there are several techniques when it comes to setting your profit target order. Limit orders are more common for profit targets. This is the case because a market order incurs slippage risk and may eat into your profit.
As an investor it is vital to have stop-losses and profit targets in your trading strategy. PeakBot’s automated stock trading software has adaptive stop-losses and profit targets built in for you.