Trading term

What is Stop-loss?

A stop-loss is a preset order that automatically closes a trade once price hits a chosen level, capping the loss. It's the single most important risk-management tool: it turns an open-ended 'how much could I lose?' into a fixed amount decided before the trade.

You place a stop-loss below your entry on a long (or above it on a short) at the price where your trade idea would be proven wrong. If price falls to that level, the order triggers and sells you out — no hesitation, no hope, no 'it'll come back.' It removes emotion from the exit by deciding it in advance, when you're calm, rather than in the heat of a loss.

Where you put it matters as much as having one. A stop placed just beyond a meaningful level — below support, under a swing low, a multiple of ATR away — gives the trade room to breathe while still defining risk. Too tight and normal noise stops you out; too wide and the loss is bigger than it needs to be. The stop's distance from entry, combined with position size, is what actually controls how much you risk.

A stop-loss caps the loss
Entry $50Stop $47exit — loss capped

Entering at $50 with a stop at $47, price falls to the stop and the position closes automatically — the loss is capped at $3, an amount chosen before the trade.

For example

You buy at $50 and set a stop-loss at $47, just below support. If price drops to $47 the position closes automatically, capping your loss at $3 per share — a risk you accepted before entering.

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Why it matters to you

A stop-loss is what separates a disciplined trader from a gambler: it guarantees that any single trade can only hurt you by an amount you chose in advance. Without one, a small loss can quietly become a catastrophic one as hope replaces a plan — which is how most blown accounts happen.

⚠ Don't move it away from the loss

The most account-destroying habit is widening or cancelling a stop as price approaches it, hoping to avoid the loss. That converts a small, planned loss into an unlimited one. A stop only works if it's honoured — move it to lock in profit, never to give a losing trade 'more room.'

Frequently asked questions

What is a stop-loss order?

A stop-loss is an order that automatically closes your position once price reaches a preset level, capping your loss. You set it at the point where your trade idea is proven wrong, so the exit is decided in advance rather than emotionally in the moment.

Where should I place a stop-loss?

Common approaches place it just beyond a meaningful level — below support or a swing low for a long, or a multiple of ATR (volatility) from entry. The idea is to give the trade room while still defining where you're wrong. Too tight gets stopped by noise; too wide risks more than needed.

What's the difference between a stop-loss and a stop-limit?

A stop-loss (stop-market) triggers a market order once the level is hit, prioritising a guaranteed exit. A stop-limit triggers a limit order, which controls the price but may not fill if price gaps through it. Stop-loss prioritises certainty of exit; stop-limit prioritises price.

Does a stop-loss guarantee my exit price?

It guarantees an exit, but not always at the exact stop price. In fast or gapping markets, a stop-market order fills at the next available price, which can be worse than the level you set (slippage). It caps risk in normal conditions but can be exceeded in a sharp gap.

Related terms

Ascending triangleAn ascending triangle is a bullish continuation pattern: a flat horizontal resistance line on top, with a rising trendline of higher lows beneath it. As the higher lows squeeze price against the ceiling, pressure builds — and it usually resolves with a breakout up through the resistance.ATR (Average True Range)ATR (Average True Range) measures how much a security typically moves in a period — its volatility — as an average of recent trading ranges. It doesn't say which direction price is heading, only how far it tends to travel, which makes it a core tool for stop-losses and position size.Bollinger BandsBollinger Bands wrap a price chart in three lines: a middle moving average with an upper and lower band set two standard deviations away. The bands widen when volatility rises and squeeze together when it falls, framing whether price is relatively high or low.BreakdownA breakdown is when price falls decisively through a support level it had been holding above — the bearish mirror of a breakout. It signals sellers have overwhelmed the buyers defending support, and often triggers a fast move lower as stops and new sellers pile in.
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