A stop-loss is the price level, set before entering a trade, at which you will exit if the position moves against you. It's defined by where the trade's logic breaks down — typically just beyond the support or resistance level the trade depended on — not by how much money you're willing to lose. Combined with position sizing, it's the primary tool for controlling risk on any individual trade.
Why it matters
- —Most catastrophic trading losses come not from being wrong, but from having no predetermined exit and holding a losing position indefinitely hoping for a recovery.
- —A disciplined rule is never moving a stop further away to give a losing trade 'more room' — that's rationalising a loss, not managing risk.
- —The distance between entry and stop, combined with how much capital you're willing to risk, determines position size — not the other way around.
How to read it
| Stop just beyond the invalidation level | Disciplined, thesis-based risk management |
| Stop set by an arbitrary dollar amount | Weaker — not tied to the trade's actual logic |
| Stop moved further away mid-trade | Red flag — emotional decision-making, not risk management |