Stop Loss Orders

A stop order is an order entered by a trader to buy (or sell) a security once the price of the security climbed above (or dropped below) a specified stop price. These orders are triggered automatically your broker at market price, which means your broker buys (or sells) the stock at the best market price available immediately.

Stop loss orders are a great tool to take the emotion out of a selling. They allow the trader to pretermine the sale price allowing the trader the freedom not to actively monitor a trade, and not hold onto positions once they fall below the stop loss level.

They can also be used as emergency exit by setting the price below your intended stop. This emergency stop will then only be trigger if a major financial setback occurs in the security.


Advantages
Don't have to monitor on a daily basis how a stock is performing
Emotion removed out of stop loss
Can be used as an emergency exit
Can be set as multiple stops for a longer-term position so that you won’t get shaken out on a small dip

Disadvantages
Stop price could be activated by a short-term fluctuation in a stock's price
Stop loss is entered as a market order which may be much different from the stop price


Losses are a part of trading and investing. Small losses are the key to long-term success.

From Wikipedia
A sell stop order is an instruction to sell at the best available price after the price goes below the stop price. A sell stop price is always below the current market price. For example, if an investor holds a stock currently valued at $50 and is worried that the value may drop, he/she can place a sell stop order at $40. If the share price drops to $40, the broker will sell the stock at the next available price. This can limit the investor's losses (if the stop price is at or below the purchase price) or lock in some of the investor's profits.

A buy stop order is typically used to limit a loss (or to protect an existing profit) on a short sale.[3] A buy stop price is always above the current market price. For example, if an investor sells a stock short hoping the stock price goes down in order to give the borrowed shares back at a lower price (Covering), the investor may use a buy stop order to protect himself against losses if the price goes too high.

A stop-limit order combines the features of a stop order and a limit order. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or to sell) at no more (or less) than a specified price.[4]

As with all limit orders, a stop-limit order may not get filled if the security's price never reaches the specified stop price.

A trailing-stop order is an order entered with a stop parameter that creates a moving or trailing activation price, hence the name. This parameter is entered as a percentage change or actual specific amount of rise (or fall) in the security price. Similarly a trailing-stop-limit order could be entered. Few brokerage firms will accept these orders as they must continuously keep track of the stock price and adjust the stop level