What is a Hard Stop?
A hard stop is a concept than an actual type of order. A hard halt presumes a price level which will trigger an order to sell the underlying security if it is reached. Hard stops are typically done as a stop-order on an open market place. The rule is likely to be good until whichever comes first cancelled or filled.
The order turns into a market order when the specified price point is exchanged, and the next available market price is taken as exchange. The idea behind the hard stop is clearly that the law is stubborn and must be enforced.
Understanding a Hard Stop
A hard stop is placed before an adverse move and remains active until the underlying security price moves beyond the stop level. A hard stop is inflexible one, unlike a mental stop, where a trader may have a price in mind, but only when they see their stop price being traded, they might or may not obey their planned selling rule.
Traders are turning a mental stop into a hard stop by merely establishing a standing order and putting it on a good-till-cancelled position in the network. This eliminates the need to be vigilant over an exit order being carried through.
This sort of an order does not protect against gapping prices but has the advantage of getting out when trading resumes at the first possible price after it has gapped below the first stop price level.
Most traders would pick a hard halt until their investment price is competitive and keep the order active until it hits the price goal. For example, after a breakout from an ascending triangle, a technical trader may buy a stock and place a hard stop just below the upper trend line support with plans to either benefit when the price goal is achieved or exit the position if the breakout fails.