Stop Loss Orders — Risk and Trade Management

What a Stop-Loss Order Does

A stop-loss is a standing order that automatically closes your trade at a predetermined price if the market moves against you. It exists so you don't have to watch every tick, and so emotion doesn't talk you into holding a losing trade too long.

Once set correctly, a stop-loss caps your loss on a trade to a known, pre-calculated amount, which is the foundation that position sizing calculations rely on.

[Read the lesson: Stop-Loss Orders](/learn-to-trade/risk-and-trade-management/stop-loss-orders)

Common Placement Methods

A structural stop is placed just beyond a recent swing high or low, on the logic that if price breaks that level, the trade idea is likely wrong. A volatility-based stop uses a measure like the Average True Range to set a distance that fits current market movement.

A percentage or fixed-pip stop simply uses a consistent distance, such as always 30 pips, which is simpler but ignores current market conditions and nearby support or resistance.

[Read the lesson: Stop-Loss Orders](/learn-to-trade/risk-and-trade-management/stop-loss-orders)

Mistakes to Avoid

Placing a stop too tight, right at a minor wiggle level, often causes it to be hit by normal market noise before the real move happens. Placing it too wide, just to 'give the trade room,' creates an outsized loss if it's hit and forces an uncomfortably small position size.

Moving a stop-loss further away after price moves against you, hoping to avoid taking the loss, is one of the most damaging habits in trading. It turns a planned, small loss into an unplanned, larger one.

**Why Moving a Stop Backfires:** A trader sets a 40-pip stop on a $100,000 position with $10 pip value, risking $400. Price approaches the stop, and the trader moves it 40 pips further away rather than accept the loss. Price continues falling, and the eventual loss is $800 — double the planned risk — because the original plan was abandoned.

[Read the lesson: Stop-Loss Orders](/learn-to-trade/risk-and-trade-management/stop-loss-orders)