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Stop Loss

A predefined exit that closes a losing trade before the loss becomes serious.

Also called: stop · sl · protective stop

In plain language

A stop loss is the price at which your trade idea is proven wrong. It is a statement about the market, not about how much money you feel like losing.

Its location should come from structure — below the swing low that would invalidate a long, or beyond a volatility band the instrument does not usually cross. Only after that do you translate it into money.

The distance between entry and stop is your risk per unit. That single number, divided into your risk budget, is what determines position size. Move the stop and the correct position size changes with it.

The formula

Risk Per Share

Entry − Stop Loss (long) · Stop Loss − Entry (short)

Entry
The price you open the position at
Stop Loss
The price where the idea is invalidated

Change the numbers

This is the concept as a working tool. Edit any field and watch what moves — that relationship is the thing worth remembering.

Try it yourself
Direction
Stop Distance
$2
As % Of Entry
4%
Shares For That Risk
50

Halve the stop distance and the share count doubles. Your dollar risk stays at $100 either way — the position just gets more sensitive to each cent of movement.

Size a full trade around this stop

Seen on a chart

A long trade with the entry above the stop loss, and the risk measured between themRISKENTRY$50.00STOP$48.00$2.00Long trade — price falling is the losing direction
The distance between entry and stop is your risk per share. Divide your risk budget by it and you have your position size.

Why it matters

Without a stop, one trade can undo months of work. With one, every loss is a known, survivable, pre-priced cost of doing business.

Common mistakes

  • Setting the stop by dollar comfort rather than by where the setup fails.
  • Widening the stop while the trade is open, which silently turns a 1% risk into a 3% risk.
  • Placing stops just beyond obvious levels where liquidity is thickest.
  • Assuming the stop caps the loss exactly. Gaps and slippage can push the fill well past it.

Put it to work

Size a trade around your stopPosition Size Calculator

Keep exploring

These concepts are connected. Understanding one usually makes the next one easier.

Position SizeRisk Management

The amount of an asset you buy or sell in a single trade.

Risk Per TradeRisk Management

The fixed share of your account you are willing to lose on any single trade.

Stop DistanceRisk Management

The gap between your entry and your stop loss — your risk on a single unit.

Take ProfitOrders

A predefined price where a winning trade is closed automatically.

Volatility-Based StopRisk Management

A stop placed at a multiple of the instrument’s Average True Range rather than a fixed percentage.