Stop-Loss
A pre-set price level at which a losing trade is closed to cap the damage before it grows larger.
A stop-loss is an exit order placed below (long) or above (short) your entry that automatically closes the position if price moves against you. It converts unlimited risk into a defined, finite loss.
Without a stop, a small loser can become a wipe-out. The best stops are placed at technically meaningful levels — below support, above resistance, or outside the average true range — not at arbitrary round numbers.
Hard stops (on the exchange) beat mental stops for most traders because emotion delays execution at the worst possible moment.
Example
Long entry at $150. Stop placed at $145 (below swing low). If price falls to $145 the trade closes, locking in a $5-per-share loss instead of riding the move down indefinitely.
Related Terms
Average True Range Stop
A stop-loss level set at a multiple of the Average True Range to account for normal market volatility and avoid premature stop-outs.
IntermediateBreak-Even
The price at which a trade neither profits nor loses — or the point at which a stop is moved to entry cost after partial gains.
BeginnerMaximum Adverse Excursion (MAE)
The furthest a trade moves against you before it either recovers and wins or hits the stop-loss.
AdvancedPosition Sizing
Calculating exactly how many shares, contracts, or lots to trade so that a stop-out costs no more than your chosen risk percentage.
BeginnerRisk Per Trade
The percentage or dollar amount of your account you are willing to lose on a single trade. Typically 0.5–2% for most traders.
BeginnerRisk-Reward Ratio
The ratio of potential profit to potential loss on a single trade. A 1:2 R:R means you risk $1 to make $2.
BeginnerTake-Profit
A target price at which a winning trade is automatically closed to lock in gains before a reversal can erode them.
Beginner