Stop-loss is an order to sell a stock once its price reaches a specified price. It’s convenient for avoiding sudden losses and locking in profits. But can you put a stop-loss order or change its specified price after buying the shares?
You can change the stop-loss price after buying the shares. You’re also able to put a stop-loss even if you didn’t before purchasing the stock. However, with many brokers, you’ll have to set the price every day since it expires daily.
This article will explain everything you need to know about using stop-loss orders and whether you can adjust them after buying the shares. Keep reading to learn more.
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Putting/Changing Stop-Loss After Buying Shares
You can put or change a stop-loss order anytime you want after buying the shares.
It costs nothing to do so and is usually pretty straightforward. The steps may differ depending on the broker you’re using, but generally, all you have to do is go to the stock and find the stop-loss order option in the interface.
You can also adjust how many of your shares you wish to sell once the stock hits a specific price. So, instead of getting rid of all shares immediately, you will still keep some in your portfolio.
Another option is to set different stop-loss prices. For example, you can set one price for 60% of your shares and another for the remaining 40%. Ideally, you should set up a stop-loss immediately after buying the shares or during the purchase to avoid forgetting to do it later.
You may want to make changes to the stop-loss price when the stock is experiencing a consistent price increase, or there has been positive news about the company, which can cause it to shoot up in the future.
In this case, you can increase the stop-loss price to ensure you don’t miss out on additional profits.
However, one essential thing to have in mind is that stop-loss orders only trigger on the day you apply them. If the stock doesn’t reach the stop-loss price by the end of the day, you’ll have to set the order again the following day.
Where To Set the Stop Price?
Many investors have a hard time determining where to set their stop-loss levels. Setting them too low will put you out of positions too early while setting them too high can result in significant losses.
Here are some of the most common methods investors use to set up their stop-loss levels:
- Percentage method: This is perhaps the most popular of all methods for setting stop-loss levels, mainly due to its simplicity. Simply determine the percentage of the stock price you’re willing to give up and put that as the stop-loss price.
- Support method: Find the support level of the stock and set the stop-loss to that amount. A stock’s support level is a price that the stock has historically struggled to fall below.
- Moving average method: A stock’s moving average is another metric that experienced traders use to predict stock prices. You can set the stop-loss price just below a longer-term moving average.
- Multiple-day high/low method: This is often used by swing traders. Via this method, the price is set to the lowest point of the previous day. For example, you can set the stop-loss level at the 7-day low price.
With that said, there are no rules you have to follow regarding how you should set the stop-loss percentage. If you’re a long-term investor, you may want to opt for a higher one, like 15%, but if you’re an active trader, 5% would be more suitable.
Reasons To Use Stop-Loss Orders
A stop-loss order allows you to set a specific price for buying or selling a stock. For example, if you place a stop-loss of 5% below the price you paid for a stock, and the price drops to that point, you’ll avoid additional losses beyond that 5%.
Setting a stop-loss order can make a massive difference in the success of your trading account if used correctly. It minimizes the risk of significant losses after sudden drops in price. On the other hand, it can also lock in profits without you having to keep daily track of the stock.
Here are some of the main reasons why you should implement stop-loss orders as part of your investment strategy:
- It doesn’t cost anything. Stop-loss orders are like free insurance policies that you can set for no extra costs, so there’s no reason not to use them. The only thing you’ll be charged is the regular commission that the broker charges for executing an order once the stop-loss reaches its price.
- It eliminates emotional decision-making. Emotional decisions in the stock market can be very costly. With a stop-loss order, you eliminate the risk of making emotional buys/sells or giving stocks “another chance,” which can save you a lot of money and inner peace.
- It saves you from substantial losses. A stop-loss order will prevent unexpected losses from huge market drops by selling your shares once they fall to a specific price.
- It locks-in profits. On the other hand, if the price reaches a point where you wish to sell the stock, a stop-loss order will lock in profits before the price drops. This can be useful during a rocky economy where the market fluctuates wildly.
- You don’t have to monitor the stock daily. If you’re not a professional day-trader or you have a regular job, it might be difficult for you to track everything that’s going on with the stocks you own on a day-to-day basis. A stop-loss order offers you the convenience of not having to track your stock every day, knowing that it’ll be sold once it reaches a specific price.
Are There Any Disadvantages of Using Stop Loss?
It’s important to realize that stop-loss orders don’t guarantee that you’ll make money on the stock market. They’re simply a tool that you can use to maximize your efficiency and save yourself from additional risk.
At the end of the day, the most essential thing is to make wise investment choices. With that said, are there disadvantages to using stop-loss orders?
The most significant disadvantage with stop-loss orders is that they might activate with the slightest fluctuation in price. For example, if you set the stop loss to 5% down, a brief drop in price will trigger the order, which may not be ideal. Some stocks tend to fluctuate up to 10% each day.
You might want to spend some time analyzing the history of the stock and finding the ideal percentage for it.
Another risk, especially in fast-moving markets where prices can change rapidly, is that you may not sell the stock for the price you set. This is because once the stop price is reached, the stop-loss becomes a market order, and by the time it’s filled, the stock price might change.
It also depends on whether or not a company gets bad news. If the limit price is under $2 below where you set the price, you must hold onto your stock until the price goes back up again.
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Conclusion
Setting stop-loss orders is a great way to minimize losses or lock-in profits, among a few other benefits. They’re very easy to set, and you can do so during or anytime after purchasing the shares.
You can also adjust/change the stop-loss price as many times as you’d like. This allows for plenty of flexibility, especially when the stock price is consistently going up, without you having to risk losing out on profits.
To determine the right stop-loss price, consider what type of trader you are and analyze past stock fluctuation patterns.
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