Stop Loss and Stop Gain are essential tools for those who want to invest in the Stock Exchange without giving up 100% security. In this article, trader will understand how to use these techniques to manage the risks of trader operations.
Have trader ever heard about one of the investor's main allies when it comes to managing risk? If trader don't know what we're talking about, it's time for trader to understand what Stop Loss and Stop Gain are.
Do trader know the fear of investing in the Stock Exchange caused by the possibility of losing money? Many people know him well and even stop investing in the stock market because of him. However, there are many people who face this fear head on because they know how to reduce risk when investing.
While it may seem unattainable for equity investments, trader didn't read it wrong. It is possible to manage risks and win on the Stock Exchange.
Today, we're going to talk about two orders that are used to determine how much trader can lose or even win on a trade.
Before starting to explain what Stop Loss and Stop Gain are, let's remind trader that assets traded on the Stock Exchange are characterized by price volatility, which means that we constantly see prices varying a lot according to market movements.
This is exactly why we believe it is so important to know the ways to invest considering this movement and to know how to mitigate the risks it brings.
What is Stop Gain and Stop Loss?
If trader already work in the financial market, trader probably heard about Stop Loss and Stop Gain at some point. In some cases, trader can also use stop and objective to talk about these same mechanisms.
These expressions are well known and used by those who invest with strategy and security on the Stock Exchange .
What is Stop Gain?
The Stop Gain order works much like the Stop Loss order. The difference between them is that Stop Gain helps trader to sell an asset when the value reaches the level trader expected, preventing a possible devaluation from harming trader profits.
Although it sounds a little strange, the fact of limiting trader earnings makes a lot of sense.
After all, an asset is not going to appreciate forever, so trader need to take advantage of that moment and put the profit in trader pocket before the positive scenario wears off.
Stop Gain Example
Imagine trader bought shares for $50.00. Looking at the market movements, trader noticed that there is a good chance that the stock will reach R$51.00 before it starts to depreciate. So, trader determine the Stop Gain order at the level of R$51.00. So, if the stock reaches this value, the order will be triggered and trader stock will be sold automatically.
Do trader see the advantage this tool offers? Stop Gain is a way to ensure that trader achieve a positive result with trader investments and operations on the Stock Exchange, preventing a change in the market from interfering with trader planning and interfering with trader earnings.
Another way to use Stop Gain is when trader are investing in a stock drop. This means that trader are waiting for a stock to drop in price to buy it cheaper, performing a short operation , also called short selling. Thus, this mechanism helps to prevent the stock from becoming more valued than expected. Therefore, we can say that Stop Loss and Stop Gain mechanisms are essential to protect trader investments and increase trader chances of success. For trader to be able to invest safely on the Stock Exchange, trader need to understand these limits and know how to mitigate risks.
Furthermore, the key to success is to always learn and understand that the market is very dynamic. This learning, whether in a stock exchange course or with other materials prepared by specialists, will help trader to take advantage of this constant movement in the right way.
How to use Stop Loss and Stop Gain?
Now that trader know what Stop Loss and Stop Gain are, it's important to know how to use these mechanisms to protect trader investments.
The first step is to understand that Stop Loss and Stop Gain are orders that must be established when trader are going to invest. As we've already explained, Stop Loss is a tool to imitate losses, preventing them from becoming an even bigger problem. Thus, when making a long-term investment on the Stock Exchange or a Day Trade operation, the definition of a loss limit must already be present from the planning stage. Stop Gain, on the other hand, is trader ally so that trader don't miss the opportunity to put the profit in trader pocket when trader assets are valued the way trader expected. This must also be defined in the planning, so that trader do not miss a good opportunity to achieve good results.
With that, trader need to set the Stop Loss and Stop Gain directly on trader broker's platform . Did trader find it complicated to do this on trader own? Quiet. Here at Toro, trader can configure these orders in a very simple, fast and efficient way.
When choosing an opportunity recommended by our team of experts, trader have access to key information about it.
Before investing, trader can adjust the amount trader want to apply and the profit and loss limits are recalculated according to the amount trader set. That is, Stop Loss and Stop Gain are automatically adjusted in our expert recommendations.
That way, trader already invest knowing how much trader can earn, and, mainly, the most trader can lose if the expected scenario doesn't happen. Therefore, trader are able to take advantage of the best opportunities in the market and still prepare strategically to deal with possible changes.
For this and other reasons, we say that here at Toro trader will find the easiest way to invest in the Stock Exchange. Trader have access to information about trader investments and techniques to mitigate risks without needing to be an expert in the field , just open trader account and enjoy these advantages. What is the difference between Stop Loss, Stop Gain and Stop Moving?
We've already talked here about Stop Loss and Stop Gain, now it's time to talk about another type of order that trader can find in the financial market: the Moving Stop. Trader remember we explained that Stop Loss is a loss limit and Stop Gain is a gain limit, right?
Unlike the mechanisms we talked about above, the Trailing Stop is a type of order that allows trader to automate the adjustment of trader Stop Loss as the asset's price varies. It's interesting because it protects trader profit or decreases trader loss.
How does trailing stop work in practice?
Well, first of all, we need to understand 4 concepts to position the Moving Stop:
• Trigger price = limit at which trader Stop Loss order will be sent.
• Price or limit price = price of the order sent when its trigger price is reached.
• Trailing Stop start price = value that the asset must reach for the Stop Loss to be adjusted.
• Adjustment = value that will be used to adjust the Stop Loss.
Remember the example we used in the previous blocks? Imagine Magazine Luiza's shares at R$50 and trader believe that, given the data trader've seen from the market, it will appreciate in value. To use Trailing Stop, trader can set trader Stop Loss with trigger price at R$48 and the limit at R$47.50.
In this case, the starting price of the Trailing Stop would be set at R$52.00 and the settlement price at R$0.50. Following what trader had planned, MGLU3 shares evolved and reached R$52.00. With this, the Stop Loss trigger price will be adjusted by R$0.50 to R$48.50 and the limit price to R$48.00.
From that moment on, the appreciation of this stock above R$52.00 may adjust the Stop Loss again.
What is day trading and how does it work?
Day trade is a purchase and sale of assets and derivatives carried out in a single day on the stock exchange. It is performed by players whose objective is to profit from the price fluctuation over the minutes or hours. Understanding this, it is important to differentiate speculation and investments. Investments on the stock exchange are characterized by involving medium and long-term objectives. Thus, the investor's intention is to buy good companies and monetize their assets in the long term.
The trader, on the other hand, is not necessarily concerned about the company he is operating, and may even profit from a stock market crash. As his focus is on volatility and prices, it is possible to carry out both sales and purchase operations. Therefore, it has more dynamics. The concept of speculation is easy to understand. However, it is very important to know that being successful in practice is not that simple. In addition to understanding what day trading is and how it works, trader need to know how to assemble a winning strategy.
In this sense, it is worth paying attention to theory and practice. After all, in the capital market, the movement does not always happen as expected. That's why we say the stakes are quite high. Exposure to volatility and leverage creates the danger of the market quickly following the path contrary to what trader expected, having the need to make a decision in a few seconds Consequently, this would be a loss scenario. Therefore, it is essential to have risk management. Day traders do not trade in the dark. There is a way to analyze the market, which considers the observation of patterns, reading of trends, and statistical indicators.
Imagine buying a lot of shares in company A. It has been on a high trajectory and has shown in its analysis that the trend would continue to be that way. But a corruption allegation involving his name comes unpredictably.
As is natural, the news drops the price of papers in the middle of the afternoon. In minutes, what was rising 3% is now falling 5% — and potentially falling even further. To top it off, the chart forms a bearish pattern and indicators (eg moving averages) indicate reversal from bullish to bearish trend. Is something like this unlikely to happen? Perhaps.
Impossible? Certainly not. Anyone who carries out speculation needs to be aware of market possibilities. Therefore, we say that traders work with trends, but it is not possible to be sure that they will follow as expected.
This example makes it easier to understand the dynamics of the trade and, as we have just seen, day trading is a trading activity that is marked by a period of just one day.
In other words, in this modality, no business is left for the next day. Before the end of the trading session, the trader ends or resets his positions.
This means selling the assets and derivatives trader bought or repurchasing those trader sold in any uncovered sale transactions.
This strategy consists of selling assets that do not have to profit from the stock market crash, buying them again at lower prices later. To understand this mechanism is very simple, trader rent the shares trader want to sell, repurchase them at a lower price, and return them to whoever rented them to trader. To carry out his trades, the trader needs to be aware of the analysis and projection, but also recognize the element of unpredictability. That's why he must be aware during the day to have some management of the operation and its risks
Buying and selling can take place at any time of the day. Therefore, the day trader's trades can last anywhere from a few minutes to hours.
As it always works with a deadline of up to one day, the speculator who carries out day trade has the possibility of earning a profit daily. Of course, if trader operations are successful. After all, losing days are also part of the day trade reality
In an example of a winning day, suppose trader buy a particular stock at 12:30 pm for $20 and sell it at 3:45 pm for $55.
In this case, trader profit was R$35 per share. If trader had bought a lot of 100 papers, the gain would have been R$3,500 in just over three hours. Sounds interesting, doesn't it? But it is worth noting that this example uses a large valuation, which does not usually happen in such a short time. Furthermore, it is worth considering the opposite scenario. That is, when the market behaves unexpectedly.
Imagine that with the purchase of 100 shares for R$50, trader end up selling for only R$30, after a major turnaround in the market. In this case, trader loss would be R$20 per share, totaling R$2,000 in loss.
Assembly of operations
The trade is free to set up its operations. Therefore, the time to buy and the time to sell are defined by the day trader while observing the market behavior. He can terminate the transaction at any time of the day. There is no predetermined time to execute the buy or sell command of assets and derivatives. It is only necessary to respect the trading hours of each market on the stock exchange. How the mechanism works is pretty simple. The complexity is in making the right decision at the right time.
It is impossible to talk about day trading without mentioning the particularities of leverage. It is an interesting and powerful market mechanism that can be used in this type of operation. It works as an extra limit that the investment bank offers to operate on the stock exchange.
Through leverage, trader can trade more money than trader have in cash. As day trades last a few hours or even minutes, it is possible to pay or receive only the price fluctuation, instead of costing the entire trade.
Thus, leverage is a mechanism that allows trader to multiply profitability through the use of third-party resources. It's like a credit granted with no interest rate. From there, trader can scale trader earnings. It is important to emphasize that this mechanism can also make trader multiply trader losses, since trader are exposed to the market in a greater amount..
Want an example? Suppose trader made only 1% profit on each stock. Seems little, doesn't it? But multiply that small gain by 500 roles. It gets more interesting. And trader can trade leveraged so trader don't have to pay for all 500 shares.
However, be aware of escalating risks as well. After all, if trader expose more money than trader have in cash, both trader profits and trader losses can be greater.
In addition, to use leverage, trader need to present a margin of guarantee.
As trader have seen, leverage works like credit granted by the investment bank. To do this, he needs to have a guarantee that can be used in the event of a loss to cover the losses.
The guarantee margin is for this purpose and is defined by the bank. It can be presented in the form of cash or assets that have liquidity.
It works like this: trader need to have a percentage of the amount trader will use in operations, whether deposited in an account or invested in other investments.
The guarantee margin does not necessarily require money. In addition to currency, some fixed income investments may be accepted, such as CDB (Bank Deposit Certificate), Treasury Direct government bonds, shares, etc.
It is also necessary to be aware of the possibility of compulsory zeroing. It happens when the investment bank understands that trader are exposed to greater risk than trader can assume. Thus, trader operation is ended automatically, even with losses.
Day traders must also understand income tax for the activity. It presents differences in relation to other operational ones. All profits made from same-day trading are taxed.
The day trader pays 20% on the profit, with no exemption band. The tax must be paid monthly by the person himself, through the issuance of a DARF . Only a small portion of the amount is deducted from the stock exchange, called the hard finger tax.
Payment of the remainder must be made by the last business day of the month following the operations. And the losses or fees paid in trades can be deducted from the profit, so as to only pay IR on the net gain.
Who can be a day trader?
Theoretically, anyone able to trade on the stock exchange can day trade. But buying and selling in the short term is definitely not suitable for those who are taking their first steps in the world of variable income.
Not even for those who already have investments but are inexperienced in the short-term trading scenario. It is important to consider trader profile and knowledge to assess trader ability to trade the day trade.
One possibility is to start by studying the market, consuming content or courses on the topic and using simulators to gain experience.
There are tools that allow trader to perform simulated trades in real time, so that trader gain experience without risking money.
On the other hand, it is worth noting that experience and knowledge alone are not enough to be successful in day trading. There is an essential component that has nothing to do with numbers: emotional control.
Keep in mind that tracking and exposing yourself to fluctuations on a stock market day can be stressful. Especially if trader face losses and see trader capital shrink.
It is necessary, in addition to an efficient strategy, to know how to control emotions in order to follow its methodology.
Making the right decision at the right time depends on a calm and focused mind. Being as controlled as possible should be the quest, which is not easy.
What are the main strategies for day trading?
Practical example of live day trading
If trader are a beginner or still want to understand how day trading works in practice, trader can start following the routine of those who are experienced in the field and follow the experts to understand how it works. On the BTG Pactual channel, trader can follow the day trade live with comments. Do trader want to understand in practice how to trade? Follow our live daily What are the advantages of day trading?
Now that trader know more about the concept of day trading and how it works, some positive points of the strategy become easier to understand. See more details about the main ones!
As we saw in how day trading works, it is impossible to talk about the advantages of day trading without mentioning the particularities of leverage. This is an interesting mechanism in the stock and derivatives market, and it is used especially in this type of transaction. It works as a limit that the broker offers to invest in the stock market. As day trades last a few hours or even minutes, trader pay and receive only the fluctuation in value. That is, there is no cost to use such a limit.
After leverage, one of the main advantages associated with day trading is the agility in operations, which allows trader to explore short-term opportunities, not being exposed to the market for long, and with a quick definition of profit or loss based on the rationale of an operation.
No other transaction offers the possibility of profiting in such a short time on the stock exchange. However, the possibility is real, but not guaranteed.
This means that, for the advantage to be confirmed, there are a series of variables involved. Including — and mainly — the trader's knowledge of the market.
By chance, many people make day trading a direct source of income. That is, they start working with it. Thus, they ensure they have the time available to carry out the analysis and trade in the market in search of profit.
Fixed income investments can be used as collateral
As we saw earlier in the article, to use leverage it is necessary to present the guarantee margin. One of the possibilities, and advantages of the trade, is the possibility of using the investment in fixed income as margin.
This advantage allows investors and operators of different profiles to operate with the investment margins they have in CDB, Treasury Direct government bonds, shares and other examples.
Non-exposure to risks between trading sessions
When it comes to trading, risks draw attention. However, day trading may have the advantage of not exposing itself to a major danger: movements after the market closes.
Between one day and another, the stock market can open with significant fluctuations.
Thus, those who swing trade , for example, may see a transaction fluctuate a lot due to news and events between trading sessions. In day trade, however, this does not happen, because all operations are completed.
In addition, there are also ways to control losses and manage risk in any speculative activity. One of them is the stop loss mechanism.
Whenever an asset or derivative reaches the price determined by the investor, the instrument is activated, preventing the loss from increasing.
In practice, it works like this: that stock trader bought for R$50, for example, receives a maximum tolerated loss range.
Let's say trader don't accept the risk of losing more than R$10 per paper.
In this case, trader can prepare a sell order so that, as soon as trader quote reaches R$40, the stop is triggered. Therefore, trader don't risk losing more than 20%.
Do trader want to learn how to configure the stop on the home broker? Click here to learn more.
Day trade is not for beginners. It requires the trader to study the market, stay informed and up to date.
Trader also need to understand graphics, be able to analyze the macro scenario, and know the characteristics of the operating asset. For all that, it can be a learning opportunity for anyone interested in the topic.
What are the disadvantages of day trading?
As trader may have already guessed, the risk of losing money quickly in day trading is real. After all, it is proportional to the profitability potential that the operation offers. With risk management it is possible to deal better and minimize possible losses. But still, there is no way to eliminate it.
It is also important to remember that when using the leverage resource, the risk rises in the wake of the expectation of greater gains. So, the best way to face this scenario is with knowledge.
Studying the market, updating and keeping yourself well informed is the first step. Training for technical analysis, understanding the macro scenario, and emotional control are extremely important tools for successful operations.
Those who skip steps increase the risks and, in this case, the chance of getting frustrated can be great.
So don't neglect trading risks. Always consider that the market offers no guarantees, and the responsibility is entirely yours.
So, recognizing the risks is critical to success. It even means that every day trader will experience financial losses at some point. Losses cannot always be avoided, and must be considered as a cost of the activity, the same occurring in any type of business.
What must be sought is that the final balance, between gains and losses, is positive.
What is technical stock analysis and how does it work?
Anyone who faces the challenge of day trading needs to be aware of all the necessary instruments. Among them, technical analysis is one of the most important. It serves both stocks and other assets and derivatives.
This analytics tool gives investors the information they need about the likely time to buy or sell.
In other words, winning or losing money on the stock market is not about luck. Rather, it's analysis, strategy, and probabilities It works from three basic premises, which are:
1. Any market expectations are reflected in the price;
2. There are trends in price movement;
3. Understanding the future can lie in understanding the past.
By putting this strategy into practice based on technical analysis, the trader is able to better identify opportunities.
For the construction of the analysis, behavior patterns are monitored and identified, in addition to statistical data and indicators related to prices and trading volume.