1. What is a Stop Loss?

A stop loss is a predetermined price at which an investor will sell a stock to limit their potential loss. It's a risk management tool that helps protect your capital from significant declines.

2. How Does the Calculator Work?

The calculator uses the stop loss formula:

Where:

• \( Purchase\ Price \) — The price at which you bought the stock
• \( Stop\ \% \) — The percentage below purchase price at which you want to sell
• \( SL \) — The resulting stop loss price

Explanation: The formula calculates the exact price point where your stop loss order would trigger based on your specified percentage.

3. Importance of Stop Loss

Details: Stop losses are essential for disciplined trading, helping to prevent emotional decision-making and limiting potential losses in volatile markets.

4. Using the Calculator

Tips: Enter your purchase price in dollars and your desired stop loss percentage. The calculator will show the exact price where your stop loss should be set.

5. Frequently Asked Questions (FAQ)

Q1: What's a typical stop loss percentage?
A: Most traders use 5-10%, but this depends on your risk tolerance and the stock's volatility.

Q2: Should I use fixed dollar or percentage stops?
A: Percentage stops are more common as they scale with your position size, but dollar stops may work better for very high or low priced stocks.

Q3: How do I set a stop loss order?
A: You can place a stop loss order through your brokerage platform, either as a stop market or stop limit order.

Q4: Can stop losses guarantee I won't lose more?
A: In fast-moving markets, your stop might execute at a worse price (slippage), especially with stop market orders.

Q5: Should I adjust my stop loss?
A: Many traders move stops up as a stock rises (trailing stops) to lock in profits while maintaining downside protection.