Stop hunts/squeezes mostly : if you're long and a sell off happens, there could be a cascade of stops selling at market price and driving the price down automatically. Sometimes, market movers do this to get the price lower (and a better entry) before a move up. It happens in the other direction too, for example GME : you're short and you put a stop order 10% above current price but you might not be the only one. Well, one whale could willingly push the price up triggering the first stops and then those first stops could trigger the other higher stops and have a domino effect (coupled with FOMO) only because the price was pushed hard once.what’s the real danger if you set a stop order? The brokers limiting trading?
Stops are a good practice however as a good loss management is the key to consistent gains. The only issue with them is that you should position them carefully with a good risk assessement, they usually say that the risk/reward should at least be 2 to 1 so if your target is +100, then your stop should at most be at -50. Obviously, a more favorable risk/reward ratio is better and in bull market 2/1 is very conservative. Also, stops on volatile securities will most likely get you stopped out so that 2/1 strategy is mostly for safer bets.
So the strategy would either be :
- look at your target price, set a risk/reward ratio and set the stop accordingly
- or set a minimum price you accept a loss (or unrealized gain) at (which is what I do myself for volatile stuff)
im catching up on work until the market bounces back