How to Set a Stop Loss on Fidelity

1. Understanding Stop Loss Orders

A stop loss order is a trade order designed to limit an investor's loss on a position. When the price of the stock reaches the stop loss level, the order becomes a market order and is executed at the best available price. This can prevent further losses in a declining market. Fidelity offers several types of stop loss orders, each with its unique characteristics and applications.

2. Types of Stop Loss Orders on Fidelity

• Standard Stop Loss: This is the most basic type of stop loss order. When the stock price falls to the specified stop price, the order is triggered and becomes a market order.

• Stop Limit Order: This type combines a stop loss with a limit order. Once the stop price is hit, the order becomes a limit order, meaning it will only be executed at the specified limit price or better. This prevents the order from being executed at a worse price than intended.

• Trailing Stop Order: A trailing stop order is more dynamic. Instead of being set at a fixed price, it moves with the stock price. For example, if you set a trailing stop with a 10% distance, and the stock rises, the stop price will adjust accordingly, but if the stock falls, the stop price remains at its highest level reached.

3. Steps to Set a Stop Loss on Fidelity

Step 1: Log in to Your Fidelity Account
Start by logging into your Fidelity account. If you don’t have an account, you will need to open one and deposit funds before placing any orders.

Step 2: Navigate to the Trading Section
Once logged in, go to the "Trade" tab. This is where you will find the options to place different types of trades, including stop loss orders.

Step 3: Choose the Stock and Order Type
Select the stock you want to set a stop loss for. After choosing the stock, you will need to select the type of stop loss order you wish to use. For a standard stop loss, you will set a stop price. For a stop limit order, you will need to set both a stop price and a limit price.

Step 4: Set the Stop Price
Enter the stop price for your stop loss order. This is the price at which the stop loss will be triggered.

Step 5: Review and Submit the Order
Review all the details of your stop loss order, including the stock, stop price, and order type. Make sure everything is correct before submitting the order.

4. Practical Tips for Using Stop Loss Orders

• Choose the Right Stop Price: Setting the stop price too close to the current market price can result in frequent executions due to normal price fluctuations. Conversely, setting it too far away may not effectively limit your losses.

• Regularly Review Stop Loss Levels: As your investment performs well and the stock price increases, you might want to adjust your stop loss level to lock in gains and protect profits.

• Understand Market Conditions: In highly volatile markets, stop loss orders might get executed at prices significantly different from the stop price due to rapid price movements.

• Avoid Emotional Decisions: Stick to your stop loss strategy and avoid making emotional decisions based on short-term market movements.

5. Common Mistakes and How to Avoid Them

• Setting Stop Prices Too Tight: This can result in frequent stop-outs during minor fluctuations. Analyze the stock's volatility and set a stop price that reflects its typical price movements.

• Ignoring Market Trends: Market trends can impact the effectiveness of stop loss orders. For example, in a strong uptrend, setting a stop loss might be premature. Always consider the broader market context.

• Not Using Stop Loss Orders: Many investors avoid using stop loss orders due to fear of triggering them during temporary price dips. However, having a stop loss order can help manage risk and prevent significant losses.

6. Conclusion

Setting a stop loss on Fidelity is a powerful tool to protect your investments and manage risk effectively. By understanding the different types of stop loss orders, following the steps to set them up, and applying practical tips, you can make informed decisions that safeguard your portfolio against unexpected market movements. Remember, while stop loss orders are helpful, they are not foolproof, and it's essential to stay informed and adapt your strategies as market conditions evolve.

7. Further Reading

• Fidelity’s Guide to Stop Loss Orders
• The Impact of Market Volatility on Stop Loss Orders
• Advanced Stop Loss Strategies for Experienced Traders