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Orders

Stop-Loss

A stop-loss is an order that closes a position automatically once price reaches a preset level, limiting the loss on a trade to an amount chosen in advance.

Also called: Stop loss order · Stop order · Protective stop

A stop-loss defines where you get out if a trade goes against you. It turns an open-ended risk into a known one: before entering, you know the price at which you will exit and therefore roughly how much you can lose. It is also the anchor of position sizing: no stop, no meaningful size calculation.

How it works

When price touches the stop level, the order triggers:

  • Stop-market (standard): becomes a market order. The exit is guaranteed, but the price can suffer slippage, especially through gaps.
  • Stop-limit: becomes a limit order. Price is controlled, but in a fast drop the order may not fill at all.
  • Trailing stop: moves with price in your favour and stays put when price moves against you.

Good stops sit at an invalidation level: a price that, if reached, means the setup is wrong. Examples are just below the support a long trade relies on, or beyond the wick of a rejection candle. Many traders add a buffer based on ATR so normal noise does not trigger the stop.

Example

A trader buys at $48.00 because price bounced off support at $46.50. The stop goes at $46.20, below the zone. Risk per share is $1.80. With a $10,000 account and a 1% risk rule ($100), the position size is $100 ÷ $1.80 ≈ 55 shares. A take-profit at $52.50 gives a reward of $4.50 per share, a risk/reward ratio of 1 : 2.5. If the stock gaps down to $45.70 overnight, the stop fills near $45.70, and the loss is about $127 instead of $100: slippage is real.

Common mistakes

  • Stops at round numbers or obvious levels. Clustered orders get hit by routine probes.
  • Moving the stop further away once the trade is losing.
  • Stops too tight for the volatility. Noise, not the market’s verdict, stops you out.
  • Choosing the stop from the money you want to risk rather than from the chart. Set the stop first, then size the position.

In SnapPulse

For every chart you scan, SnapPulse outlines an invalidation (stop) level next to the entry zone, target and risk/reward ratio, and calculates position size on your device. Download SnapPulse or try the position size calculator.

Educational content — not financial advice.

Updated

Frequently asked questions

Where should I put my stop-loss?

At the price that proves your trade idea wrong, such as just beyond the support or resistance the setup depends on, rather than at an arbitrary percentage.

Is a stop-loss guaranteed to fill at my price?

A standard stop becomes a market order when triggered, so in gaps or fast markets it can fill worse than the stop price. Some brokers offer guaranteed stops for a fee.

What is the difference between a stop-loss and a stop-limit order?

A stop-loss becomes a market order and always exits; a stop-limit becomes a limit order and may not fill if price gaps past the limit.