Soft Stop Order
Contents
Unlocking the Secrets of Soft Stop Orders in Trading
Exploring Soft Stop Orders
In the realm of trading, soft stop orders serve as mental reminders for traders to initiate buying or selling actions when specific price levels are reached. Unlike hard stop orders, which are already submitted to brokers, soft stop orders offer greater flexibility and allow traders to adapt to changing market conditions.
Understanding Soft Stop Orders
Soft stop orders are essentially intentions held by traders to buy or sell securities once certain price thresholds are crossed. Unlike hard stop orders, soft stop orders are not yet submitted to brokers, giving traders the freedom to modify or disregard them based on evolving market dynamics and additional information.
Traders often utilize soft stop orders when they have predetermined price levels in mind for trading actions but prefer not to commit to those prices immediately. This approach allows traders to retain subjectivity and assess overall market sentiment before executing trades.
Benefits and Risks
Soft stop orders can be both advantageous and detrimental depending on the investor's psychology. While they provide the opportunity to conduct further research before making trading decisions, they also run the risk of undermining discipline by allowing traders to delay or avoid challenging decisions.
Example of Soft Stop Order
Consider a scenario where a value investor maintains a watchlist of companies to buy at discounted prices. When one of the companies on the list experiences a price drop due to adverse news, the investor, having set a soft stop order, faces a crucial decision: adhere to the predetermined exit point or adjust the stop order based on evolving circumstances.