What Is a Stop-Loss and Where Should You Place It?

A stop-loss is a preset order that closes your trade if price moves against you to a level you chose in advance, capping the loss. It takes the decision to exit a losing trade out of the heat of the moment and sets it before you enter. Educational, not financial advice.

What a stop-loss does

Once set, it exits your position automatically at (or near) your chosen level, so a single trade cannot run away from you. It is the mechanism that makes fixed, small risk possible.

Where to place it

Place it where your trade idea is proven wrong — usually beyond a structure level, not at a random dollar amount:

• Below a support level for a long, above resistance for a short.
• Beyond the swing that defines your setup, so normal noise does not stop you out.
• Some traders use volatility, placing the stop a multiple of the average range away — our ATR stop-loss calculator helps with that.

Size to the stop, do not widen the stop to the size

This is the key discipline: decide the stop by the chart, then set your position size so the distance to that stop equals your fixed risk (the 1% rule). Never move the stop further away just to justify a bigger position.

Takeaway

A stop-loss is a preset exit that caps your loss. Put it where your idea is wrong — beyond a structure level — then size the trade so that distance is your fixed risk. The stop defines the size, not the reverse.

Educational only — not financial advice; trading carries a real risk of loss.