Pros and cons of stop loss orders

Pros and cons of stop loss orders

A two-sided article written by Alex Foster and The White Coat Investor taking opposing views on the usage of stop loss orders.

Alex takes the pro-stop loss side, concluding:

Investing is a balance act of risks and rewards. Investors can reduce downside risks while maintaining the potential for rewards available by using a trailing stop ladder. The benefits of using a trailing stop ladder outweigh the negatives. While laddering out of a position with staggered trailing stops does not eliminate risks, it does reduce the size of losses significantly during a bear market.

On the other side, The White Coat Investor cites six reasons he doesn’t sue stop loss orders:

additional costs

additional taxes

additional complexity

stop loss orders are a form of market timing

beware of getting whipsawed

watch out for gapping

Alex includes a final rebuttal addressing each of the arguments. A big part of of the decision comes down to how active and disciplined you can be with your investing. If you truly believe in your investments for the long-term, there’s no need to bother. If you’re looking short-term and/or willing and capable of trading in-and-out on a consistent basis yet don’t want to watch the market all day, stop losses can be used effectively.

Read more at Stop Loss Orders – Pro/Con Series at The White Coat Investor.

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