Stop-loss, explained
A stop-loss is an order that automatically exits a position when the price hits a level you set, capping your loss. It takes emotion out of the decision — you define your risk before the trade.
Fixed vs trailing stop-loss
A fixed stop-loss sits at a set price. A trailing stop-loss moves up as the price rises (and holds when it falls), locking in gains while giving a winning trade room to run.
How to set a stop-loss
Base it on your risk — how much you’re willing to lose — and on the chart (e.g. just below a support level or using ATR). Combine it with position sizing so no single trade can seriously hurt you.
Common mistakes
Setting stops too tight (you get knocked out by noise), moving a stop further away to “give it room” (turning a small loss into a big one), or skipping stops entirely. Discipline with stops is what keeps traders in the game.
Frequently asked questions
What does a stop-loss do?
It automatically exits your position when the price hits a level you set, limiting your loss and removing emotion from the decision.
What is a trailing stop-loss?
A stop-loss that moves up as the price rises and stays put when it falls, locking in gains while letting a winning trade continue.
Where should I place my stop-loss?
Based on how much you’re willing to risk and on the chart — often just beyond a support/resistance level — combined with sensible position sizing.