A stop-loss can fail as a loss limitation tool because hitting the stop price triggers a sale but does not guarantee the price at which the sale occurs.
We see this often when the stock opens at a substantially lower price, but it can happen intraday as well.
Why did my stop loss not work?
The principal reason stop-loss orders don’t work is because stock prices aren’t serially correlated.
Do stop losses always work?
Stop-loss orders can be an effective tool, but as this example illustrates, they don’t always work as advertised and investors must use them with caution. This is especially true in volatile markets. With a straight stop-loss order, when the stock reaches a predetermined price, the order converts into a market order.
Is a stop loss guaranteed?
A: Guaranteed stop loss orders protect you against overnight price movements or gapping – when a price jumps past a stop loss level. Guaranteed stop losses will force an order to go through at a the specified price even if the market price gaps past it.
What should stop loss be set at?
A stop-loss order is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop-loss is designed to limit an investor’s loss on a security position. Setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%.