Stop loss is used only with a buy position. When market conditions do not support a trader and the price has reached the Stop Loss level, the transaction is closed automatically. Therefore, Stop Loss helps traders to control losses and to maintain security in the event of damage at least in the deposit section. If the trader does not use a Stop Loss order, the position will be closed by the broker when the amount of the loss equals the deposit amount.
There are 3 types of Stop Loss orders: fixed stop loss, sliding stop loss and combined stop loss.
Fixed Stop losses are set when opening a position. They cannot be replaced until the transaction is closed. Sliding stop losses, as opposed to fixed stop loss, can be replaced whenever depending on price movements. Another name for sliding stop loss is Trailing stop which can be replaced manually or automatically by considering the trader settings. There are currently many discussions about whether to use Stop losses or not. Some traders believe that Stop loss is mandatory for trading, emphasizing the ability of Stop Losses to prevent loss of all deposits. If prices move quickly in a direction that is not in line with estimates, transactions that have not been closed at that time will result in significant losses.
Opponents of Stop Loss believe that this order can limit not only losses, but also profit. Because price movements are often unpredictable, they can develop according to traders’ estimates even with some periodic increases that pass the Stop Loss line. In this case, the position is closed with a loss even though it is possible to close it with profit. Generally, the decision to use Stop loss or not depends on the individual strategy of a particular trader. Therefore, there is no single opinion on the need for the use of the loss limit.