Stop-Loss Planning Basics

A stop loss represents the price at which a trade idea is considered invalid or no longer acceptable according to the trader's plan.

Price level first, quantity second

A common risk-management approach is to choose a meaningful stop-loss level before calculating quantity. Moving the stop closer only to obtain a larger quantity can create a mismatch between the trade idea and the risk plan.

Long and short trades

• For a long trade, stop loss is generally below entry.
• For a short trade, stop loss is generally above entry.

Factors traders often review

• Recent swing high or swing low.
• Support and resistance.
• Volatility and average price movement.
• Timeframe used for the setup.
• Expected slippage and liquidity.

Important limitation

A stop-loss order does not guarantee execution at the exact trigger price. Fast movement, gaps or low liquidity can result in a different exit price.