Stop Loss Orders Example: Understanding This Trading Strategy

S ometimes called a stop order, a stop-loss order is an advanced tool allowing traders to automatically execute a trade only if the asset in question hits an established price level. This differs from a standard stock-market order, in which the trader buys or sells the specified asset at the current market price. With a stop-loss order, you can potentially limit your loss on a particular trade. Investors who attempt to profit from short-term market changes will benefit most from stop-loss orders. Long-term investors will rarely find a need for this particular strategy.

Key Points:

  • Stop-loss orders allow traders to manage risk by limiting losses for a particular trade.
  • With a stop-loss order, you set a price that triggers a market order when the target security hits that price.
  • The shares in question trade at the stock’s price when the market order goes through, which is not necessarily the same as the trigger price.
  • You can lose out on potential profit if your asset dips down to the stop-loss price and then recovers.
  • Traders typically set the ideal stop-loss price by looking at either the asset’s moving average or support level, though some decide based on how much of their investment they can afford to lose.
  • Pros of stop-loss orders include guaranteed profit, limited loss, a low-monitoring-required approach, and the ability to avoid making overly emotional trade decisions.
  • Potential downsides of stop-loss orders include an early stop-loss trigger, often caused by high market volatility or a stop price that’s not low enough.
  • A trailing stop-loss order allows a trader to capture profit by executing a sale at the highest daily price after the asset hits the stop-loss price.

How Stop-Loss Orders Work

The easiest way to understand how a stop-loss order works is to look at a stop-loss order example. Let’s say you bought 10 shares of Apple stock at $115 per share. Since your purchase, the trading price of the stock rose to $145. You think the Apple shares will keep rising and want to make sure you profit at the peak of the market. To realize this goal, you set a stop-loss order to sell your 10 shares of Apple if they drop below $130. In this stop-loss example, you don’t need to constantly monitor the market to protect your position.

Usually, the trigger price for a stop-loss is the same as the highest outstanding bid price for a stock. In this stop-loss sell order example, the shareholder would sell the stock when it hits $130. This price would limit your loss while providing a profit of $15 per share, or $150 in this example. However, remember that the trigger price simply issues a market order for the desired number of shares. The buyer will receive those shares at the current market price, which is often but not necessarily the stop-loss price.

Stop-loss orders limit but do not eliminate risk. You still hold the risk of being ‘stopped out’ if your stock hits the stop-loss point when you don’t actually want to sell. In the stop-loss order example above, if the Apple stock drops below $130, then recovers and exceeds $145, you miss your potential for larger profit after the plunge triggers the sale. You also risk a lower profit than expected if you set the stop-loss price too high.

Traders generally use one of three different methods to land on an ideal stop-loss order price:

  • With the moving average method, you find the moving average for a long-term period and then put your stop price just below that level. For example, if a stock has a moving average of $95 over the last month, put your stop price order at $94.
  • If you prefer to use technical indicators for your trades, try the support method. With this technique, you find the support level for your target stock and use that level as the stop-loss price.
  • The percentage method simply goes by the value you would be comfortable losing. For example, if you can stand to lose 5% of your holdings of a stock that is trading at $50, set your stop-loss price at $37.50.

Pros of Stop-Loss Orders

Advantages of using stop-loss orders include:

  • The guaranteed profit and limited loss created by the stop-loss price.
  • The lack of additional transaction fees for a stop-loss order compared to a traditional market order.
  • The ability to take a set-it-and-forget-it approach to a specific transaction, eliminating the need for constant monitoring.
  • The removal of emotion from the trading process, which can sometimes lead to unwise market moves.

Going on vacation? Too busy to check your portfolio every hour? The stop-loss order might be your new best friend.

Disadvantages of Stop-Loss Orders

Some of the reasons to think twice before placing a stop-loss order include:

  • You are trading a high-volatility stock, which can result in an unwanted price trigger.
  • You can limit your gains if you set a stop price higher than the realized sales price.
  • You have concerns about the risk of early activation of your stop-loss order.
  • Restrictions on stop-loss orders; for example, many brokerage firms have rules about using stop orders on some asset classes, usually over-the-counter and penny stocks.

Let’s look at a stop-loss order example that actually occurred in real life. This example epitomizes the risk associated with an unexpected stop-loss trigger. When the market suffered a flash crash in May 2010, hundreds of New York Stock Exchange securities dropped in value by more than 20%, triggering hundreds of stop-loss orders and jamming the trading desks.

The affected stop-loss orders were eventually filled at prices well below the trigger prices, even though many of the securities recovered within hours. As reported by the Wall Street Journal on May 15, 2010, one management consultant had a standing stop-loss order for $49.17 per share. His order was activated but did not execute until the shares hit $41.15, resulting in the loss of more than 18 months of capital. The fund in question, the Vanguard Total Stock Market ETF, closed for the day all the way back up at $57.71 per share.

In this example of a stop-loss order, the trader ended up losing $8.02 per share from the stop-loss price. Had he not placed a stop-loss order, he could theoretically have instead sold the shares at the closing price for a profit of $8.54 each.

Using a Trailing Stop-Loss Order

Image via Flickr by Jim Makos

T his special type of stop-loss order has an adjustable rather than fixed trigger price. With this stop-loss order example, you set a trailing stop-loss price, which means it trails (falls under) the asset’s price by a certain amount, often a specified percentage. Like a stop-loss order, this scenario allows you to guarantee profits, but it also ensures that your order will take advantage of a rising share price. A trailing stop-loss order will always take place at the highest daily price for the stock in question.

Let’s look at a stop-loss example with a trailing price. In this scenario, you buy a target stock at $20 per share and establish a 5% trailing stop-loss order. With this stop-loss order example, your sell order will be triggered when the stock price hits $19. However, instead of automatic execution as with a traditional stop order, the order does not take place until the stock hits its highest daily price. In this example, the sale would take place at $19 per share even if the stock drops further and at $30 per share if that’s the peak trading price of the day.

These stop-loss order examples should give you the primer you need to try this strategy for yourself. Some experts recommend that all short-term traders get in the habit of setting a stop-loss to mitigate risk and optimize the potential for profits.

Author:Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

Top 10 Tips for the New Investor

I nvestments are a great way to generate wealth and ensure future economic security, but starting can be challenging. Understanding stock market terms, strategies, and risk abatement can be intimidating for even the most experienced investor. We have the experience and knowledge you need to jump into the world of investing without losing sleep or all of your savings. Here are our top 10 tips for the new investor.

Key Takeaways

  1. Start investing as soon as possible.
  2. Start small and growing over time.
  3. Clearly define your investment goals.
  4. Understand your risk tolerance.
  5. Educate yourself with books and other reliable sources.
  6. Put your money in companies you understand.
  7. Diversify your investment portfolio
  8. Keep emotion out of decision-making.
  9. Reinvest your dividends.
  10. Pay attention to fees.

1. Start as Soon as Possible

No matter what your financial situation, you can begin investing and preparing for your future. The value of your investment portfolio depends on three factors:

  • The amount of capital you invest.
  • The net earnings on your capital.
  • How long you keep your investment.

The longer your money stays invested, the more time it has to grow. Also, when you are investing over a long period, you can start with small amounts of money. Compounding interest (basically, interest earned on interest from your initial investment) and time are your friends. Begin investing as soon as possible to reap the greatest benefit.

2. Start Small and Simple

Before you dive into the stock market on your own, invest in your employer’s 401(k) plan, which puts investing on autopilot. With a 401(k), you can choose how much you want to invest, and it is automatically taken out of every paycheck and invested in your portfolio. Your 401(k) investments are made pre-tax, so participating in such a plan also lowers your tax bill. Most employers offer a company match for your 401(k) contributions. Aim to invest enough to get the full benefit of your company’s 401(k) match.

Many 401(k) plans don’t require you to choose individual stocks, just ‘target date’ mutual funds. With a target-date fund, you choose the fund with the maturation date closest to your retirement. Target-date funds automatically adjust investments (usually moving from higher risk to lower risk) over time to provide you with the most benefit at maturation.

3. Know Your Investment Goals

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Before you start investing, you need to know why you want to invest. Determine if your goals are:

  • Short-term: These might include a down payment on a home. Short-term investment goals are best accomplished by investing in a mix of stocks and bonds. However, if you want a return on your investment in less than five years, the stock market may not be your best option.
  • Long-term: These goals may include college or retirement savings. Investment goals that are 10 years or more in the future can be accomplished primarily by investing in stocks.

Knowing your goals and time frame can help you figure out how much money to invest and what your investment return needs to be to meet those goals.

4. Know Your Risk Tolerance

Risk tolerance boils down to how much variability you are willing to deal with when it comes to your investments. Everyone’s risk tolerance is different. Your ability to deal with risk can be a result of your:

  • Family background: Did your parents invest? Was money an issue in your home?
  • Age: Younger investors tend to have a higher risk tolerance than older investors.
  • Income: If you have a large income and more money to invest, you can take more risks than someone with less money to lose.
  • Education: Your overall understanding of money and investments affects your risk tolerance.

Many people make the mistake of selling off stock when the market drops. By selling off the stock in a low period, you miss the recovery of your investment. Keep in mind that while the market fluctuates over time, it always recovers. Focus on your long-term goals and be patient.

Understanding your level of risk tolerance will help you make more rational decisions rather than emotionally reacting to changes in the market.

5. Educate Yourself

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When you begin investing, spend time reading personal finance and investment books, and follow reliable investment gurus. You should also learn some basic investment terms such as:

  • Asset: This refers to stocks, bonds, and other investments that have the potential to earn money over time.
  • Asset allocation: This is how you divide up the holdings in your portfolio.
  • Bear market: Investors use this term to refer to a falling market.
  • Bull market: Investors call a rising market a ‘bull market.’
  • Bonds: These are a loan you make to a company or the government. In return, you get your money back plus interest after a set period.
  • Dividend: This refers to a portion of company earnings paid out to shareholders
  • IPO: Initial price offering (IPO) is the initial stock sale when a private company becomes a publicly-traded company.
  • Stocks: These provide partial ownership in a company. when the company does well, the value of your stock increases and vice versa
  • Mutual funds: These refer to a pool of money from many investors used to buy investments. These have a portfolio manager who chooses which investments are part of the mutual fund. Rather than owning individual stocks, you just own a portion of the mutual fund made up of a variety of stocks and other investments.
  • Price-to-earnings ratio: Also known as the ‘P/E ratio,’ this refers to how much you paid for each dollar the company earned. The higher the P/E ratio, the more confidence investors in future earnings.
  • Prospectus: This is a document required by the Securities Exchange Commission for any stock, bond, or mutual fund. This single document contains all the information you need to decide on an investment, including information on the company’s history, management, previous performance, and growth potential.

6. If You Don’t Understand It, Don’t Invest

Put your money into companies and industries you understand well. Beware of current fads and hot, new companies that you don’t know much about, as you may end up losing money instead of making it. Before you invest in a company, make sure you understand how the company makes money and what factors affect its profitability.

Feel free to branch out a bit after you have some experience investing, but sticking to what you know in the beginning will decrease risk.

7. Diversify Your Investment Portfolio

The expression ‘Don’t keep your eggs in one basket’ applies to many strategies, including investment. Investing in one industry or company can be catastrophic during a market downturn. An investment portfolio that has a healthy mix of stocks, bonds, and other commodities is better insulated against market volatility and can better remain afloat even when the market is experiencing a downturn. It’s also wise to spread your investments across a variety of industries, ensuring that a drop in one area doesn’t knock out all of your investment money.

As your money grows, make sure that you periodically check your portfolio. Investments that are right for you today might not be in 10 years. When you are more comfortable investing, you can also use a portion of your money to invest in fine art, real estate, and other niche interests.

8. Leave Your Emotions at the Door

When you begin investing in the stock market, understand that you are making a long-term investment. The stock market is volatile in the short-term but usually profitable in the long-term. A successful investor is one that can stay composed and make logical decisions during stressful times. Selling stocks at the first scary downturn can end up costing you money in the long run. You must be logical about your choice of investments. Don’t allow a flashy CEO or visionary idea to underestimate the risk associated with an investment.

On the other hand, sentimentality about an investment (such as stock shares gifted from a family member) should not keep you from selling a poor-performing stock. Long-term investment should be unemotional to be the most profitable.

9. Reinvest

As a new investor, always reinvest any capital gains or dividends that you receive to help your investment to grow and generate wealth faster. Dividend reinvestments don’t usually require transaction fees, saving you money with every trade. Because it creates regular, steady stock purchases, dividend reinvestment allows you to automatically increase your investment portfolio without much effort on your part.

Furthermore, with dividend reinvestments, you can buy fractional shares that you would not otherwise be able to afford. Over time, the reinvestment of your dividends will allow you to accrue high-value stock bought a fraction at a time.

10. Watch out for fees

F ees can take a large chunk out of your market returns over the long term. For example, investing in a mutual fund with a 3% fee that returns 8% in a year will only earn you a net of 5%. If you stretch fees out over years of compound interest, you will have lost thousands of dollars that could have helped you reach your goals sooner. Always aim to keep investment fees as low as possible, no higher than 1%.

Everyone has the power to better their situation by investing. With our 10 tips, you can start investing today to ensure a wealthier, more secure tomorrow.

Author:Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.

Top 8 Apps to Buy Stocks

B uying stocks with an app is easier than you might expect. In fact, no matter your trading experience, you can find a variety of apps that let you up your trading game. The ability to purchase stocks with an app makes investing more accessible than ever. Now, from the palm of your hand, you can make trades and build your portfolio, often with very low fees.

Key Takeaways:

  • The app you choose to buy stocks will depend on your experience level, budget, and goals.
  • Investors on a smaller budget can look for apps that charge low fees and allow for buying fractional shares.
  • More advanced traders will find apps that offer advanced charting features, the ability to trade in multiple markets, and more.

Choosing Apps to Buy Stocks

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You’ll find plenty of apps designed for buying and selling shares of stock (and other investment products, too). If you’re comfortable with smartphones and stock market basics, a stock trading app could be for you.

How Much Money Do You Need to Use Apps to Buy Stocks?

Many major brokerages allow you to open an account with no opening deposit. However, you will need to have the funds to purchase shares of stock. Full shares can range from under $5 to well beyond $1,000.

If you’re starting out on a smaller budget, you can look for apps that let you buy fractional shares. Buying fractional shares just means you’re buying less than a full share at one time.

You should also keep trading fees in mind to make sure you’re not letting fees eat into your profits. Fortunately, commissions at many brokers these days have fallen to zero, making it even easier for you to get in on trading from your smartphone whenever you want.

What Are the Advantages and Drawbacks to Using Apps to Buy Stocks?

Trading stock using an app comes with both benefits and drawbacks.

Advantages of using an app to buy stocks include:

  • You can manage your investments while you’re on the move.
  • You’ll have easy access to your portfolio, and you’ll never lose track of your investment values.
  • You can trade stocks anywhere you have a cellular data or internet connection.

While there aren’t any major disadvantages to using apps to buy stocks, you’ll want to keep a few things in mind:

  • Apps can make it harder for you to disconnect from your investments.
  • App features may be different than what you’re used to from a desktop browser experience.
  • The smaller mobile screen can make trading harder for some users.

8 Great Apps to Buy Stocks

The best mobile stock app for your specific needs depends on your trading goal and your experience. Fortunately, there’s an app out there suited to any trading level and budget. You’ll have the ability to invest in stock, exchange-traded funds (ETFs), options, and more wherever you go.

Here are eight great apps to check out:


The Acorns platform makes buying stock with an app particularly easy for first-time investors. One unique feature is the ability to ‘invest the change’ when you link your debit or credit card to the app. The app then rounds up regular purchases, investing the difference into a diversified portfolio of index funds. The system makes investing easy for a new investor, no matter how much money you’re starting with, as Acorns is designed for quick, automatic investing.

Making small-dollar investments is certainly appealing to investors on a budget. However, you should keep this app’s fee structure in mind to leverage what it offers. The app takes a small percentage of your account balance out as a monthly service fee, so leaving a small sum in your account over a longer period may mean the fee eats into the balance — even when the market is doing well. You’ll want to have a large or continually growing balance to come out on top with this platform.


The eToro mobile app gives users access to more than 2,000 financial instruments. You can open an account to trade things like:

  • CFDs.
  • ETFs.
  • Indices.
  • Stocks.

You’ll also have real-time data and analytical tools as well as stop-loss on account at your fingertips.

The eToro app includes some unique features like a virtual demo account that gives beginners virtual funds to practice with, one-click trading, and offline trading with select orders. The stop-loss feature, which sets a minimum sum on your account, can help you avoid losing money. Though the app is free to install, it does have a minimum initial deposit and charges fees for things like withdrawals and inactivity.

Fidelity Investments

Fidelity is a brokerage that’s well regarded for beginner investors and just about anyone who wants to focus on retirement and other long-term investments. The Fidelity Investments app works for Amazon, Android, and iOS devices. While this app doesn’t have the same advanced charting features that some competing apps offer, it’s a solid choice for beginners who don’t need (or want) those advanced features and just want to manage accounts and make trades.

With no minimum deposit required, this app makes it easy for anyone to get started. Tradable assets include:

Fidelity offers $0 commission fees on ETF, options, and stock trades. However, there’s a flat fee per options contract and fees for things like broker-assisted trades and transaction-fee bearing mutual funds.

Intuitive screens make tracking performance and entering trades easy. The app also includes a feed of customized investment and account information.

M1 Finance

M1 also offers various features great for beginning investors interested in buying shares with an app. The app connects you with commission-free investing options, and you’ll be able to invest in fractional shares with this app, too.

M1 Finance lets you create and maintain a diversified and correctly-allocated portfolio with stocks and ETFs that’s totally free. Say you have a portfolio with four ETFs. Instead of needing to do four individual transactions, paying a commission on each one when you buy, you just invest and let M1 Finance take care of the rest for you. You can even use portfolios M1 sets up in advance if you don’t know how to set up a portfolio yourself.


If you’re looking to buy stocks with an app that offers rich visuals and expansive charts, Plus500 is one app to investigate. A comprehensive trading screen includes detailed information such as past and current positions of stocks. The app has a focus on technical analysis and trading, letting users multitask within the platform and trade in several different markets.

You’ll have access to a demo account and risk management features like guaranteed stop-loss. While there is a minimum deposit, most amounts are relatively affordable, making this app accessible to investors at all levels.


This app is free and simple to use, making it another good choice for investors looking to get started. After you sign up and make a deposit, you can search for specific firms and monitor companies’ revenues to decide how you’ll invest.

With no minimum investment, no commissions, and no maintenance fee, Robinhood makes it easy for anyone to start investing. Other interesting features include a company watch list, advanced order support, and day-trade tracking. Beyond standard plans, Robinhood also offers premium memberships if you want to access golden features.

SoFi Invest

SoFi offers a great app for investors looking to learn more about trading. Short for Social Finance, SoFi offers banking, loans, and investments on its convenient app. Because the brokerage features commission-free trades as well as fractional shares (called ‘Stock Bits’ here) and has a minimum account balance requirement of only $1, it’s a great place to start when you want to test the waters of investing and gain more knowledge on a smaller budget.

The app includes a learning section in its Invest tab. You also have the opportunity to browse various collections of stocks and funds as you’re considering what to purchase. While the individual stock pages don’t have that many details, that can actually be helpful for beginners to learn how to manage an account without getting too overwhelmed.

TD Ameritrade

This app is one of the best for free options trading. It’s also a great way to buy stock with an app in general. The TD Ameritrade app offers a commission-free pricing structure for options as well as ETFs and stocks. You can also get no-maintenance fee and no-minimum IRAs through TD Ameritrade.

When it comes to commission-free ETFs, TD Ameritrade offers access to giants in the industry such as Vanguard and iShares. TD Ameritrade also features a diversity of no-load ETF funds. That makes this broker great for investors who want to dive into tax-loss harvesting on their own.

In addition to all those free trading possibilities, this mobile app connects users to portfolio analysis, research, and other free information that makes learning as you go that much easier.

U sing an app to buy stocks can open up a world of investment possibilities. Just make sure you carefully review things like fee structures and account minimums so you can wisely develop a trading strategy using your app.

Author:Kyle Dennis

Straight outta college Kyle Dennis taught himself to trade, and then made over $7 million in trading profits by the time he was 28 years old. Kyle reveals how to find, track, and profit from lucrative trades for exceptional profits. Thousands of traders follow him every day to learn how to target these high probability trades.