Stop Loss

A stop loss is a protective order placed below the entry price (for long positions) or above (for shorts) that closes the trade if price moves against it past a specified level. It defines the maximum loss in advance and is the single most important risk-management tool in retail trading. Stop losses can be hard (a fixed price), trailing (auto-adjusts as price moves in your favor), or guaranteed (broker honors the level without slippage, usually for a premium). Stop levels should be placed where the trading thesis is invalidated, not at arbitrary distances.