What is a Stop Loss?

A stop loss is a risk management tool that automatically closes a trading position when the price reaches a predetermined level. It helps traders limit potential losses and protect profits by setting a maximum acceptable loss level.

Types of Stop Loss Orders

Regular Stop Loss

• Triggers a market order when price reaches stop level
• Subject to slippage in volatile markets
• Most basic form of protection

Stop Limit

• Sets both stop trigger and limit price
• More control over execution price
• Risk of non-execution

Trailing Stop

• Follows price movement at set distance
• Automatically adjusts to protect profits
• Dynamic risk management

Best Practices

Placement Considerations

• Technical levels (support/resistance)
• Volatility range
• Risk tolerance
• Position size
• Market conditions

Common Mistakes

• Setting stops too tight
• Using round numbers
• Ignoring market volatility
• Moving stops further away

Related Terms

• Take Profit
• Risk Management
• Order Types
• Slippage