Airbags in car help to protect the driver in the event of car crashes. However, airbags cannot guarantee the survival of the driver and passengers in all scenarios.

Stop loss order is one of the favourite risk management strategies used by traders. If the price falls below the sell stop order, the trader’s position will be closed and hence, the loss is limited. This will help the trader keep to the risk reward ratio of his strategy.

While stop loss orders work well in most situations, they can fail when the market becomes volatile and especially when there are price gaps. Stop loss orders are most vulnerable to price gaps.

I experienced the vulnerability of stop loss order in a trade done two months ago. I took a long trade on Cree Inc (CREE) and placed a stop loss at $72.97 but the price gapped down and my trade ...