Stock market’s volatility can make or break your portfolio. Investors or traders often use stop-loss order for protection. But, there are some situations or ways stop loss order will not protect stock investment.
A stop-loss order is not a guarantee to cut your losses at desired levels during adverse market movements. Once you make a position in stock market, you may choose to place a stop loss order to prevent losses after certain price levels.
This strategy do requires some technical & trading skills to place the stop loss order at the most appropriate levels. If you fail to do so at the right price levels then you may have to bear losses.
In this way you can cut your losses in a normal trading scenario only. In adverse situations, even placing a stop loss order will not work for you. Here are 10 shocking ways or reasons stop loss order can’t guarantee portfolio protection:
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(1) Gap Up Or Gap Down Openings
It is one of the most unbelievable situations or ways stop loss order will not protect stock investment. A gap up & gap down opening is a significant part of stock volatility. It represents big imbalances between demand & supply.
Whenever a stock starts trading in this manner, your stop loss order will not execute at your desired levels. But, it will get converted into a limit order.
For example, you have purchased stocks of a company A at a share price of $101. Its closing price is $100. You have placed stop loss trigger price at $95 & limit price $94. Your stop loss order will get executed between $94 to $95 if the stock gets traded at or below $95.
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