What is Stop-Loss?
An order that automatically closes your position at a specified price to limit losses on a trade.
A stop-loss is an automatic exit order placed below (for longs) or above (for shorts) your entry price. When the market reaches that level, your position is closed — limiting the loss to a predefined amount.
Types of stop-loss:
| Type | How it works |
|---|---|
| Fixed stop | Set at a static price level |
| ATR-based stop | Set at N × Average True Range from entry |
| Percentage stop | Set at X% below entry |
| Structure stop | Set below the nearest support level |
Placing a stop-loss:
The best stop-losses are placed at levels where your trade thesis is invalidated — not just where you'd lose a comfortable amount. Common placements:
Stop-loss vs. liquidation:
Your stop-loss should ALWAYS be above your liquidation price. If your stop is at −5% and liquidation is at −8%, fine. But if you remove your stop and hold, a fast move can liquidate you before you react.
A good rule: set your stop where your thesis is wrong, then size your position so that stop represents 1–2% of account risk.