A simple definition
“Stop-loss” literally means “stop the loss”. You buy at €100 and set a stop at €95: if the price falls to €95, the position is sold automatically. For a short sale (a SHORT position, which profits when the price falls), it is the other way round: the stop sits above the entry price.
Fictitious example
- Buy 20 shares at €100, stop-loss at €95.
- Planned loss if the stop is hit: 20 × (100 − 95) = €100, before fees.
- Without a stop, a drop to €80 would cost €400, and nothing would force you out.
The different “stop” orders
- Stop market: once the level is touched, the order becomes a market order and fills at the best available price. It almost always gets out, but not necessarily at the planned price.
- Stop limit: once the level is touched, a limit order is placed. The price is controlled, but the order may never fill if the market gaps through it.
- Trailing stop: the level follows the price at a fixed distance when it moves in your favour, and never moves back. It protects part of the gain.
- Take-profit: the mirror order, which locks in the gain at a target set in advance.
What a stop-loss does not guarantee
On a sharp move, or at the open after an announcement, the price can jump past the level: this is called slippage (the gap between the expected price and the price you actually get). With a stop at €95, a share that opens at €92 is sold around €92. FINRA, the US regulator, explains these risks: stop orders in volatile markets. Some brokers offer a “guaranteed” stop, usually for an extra cost.
Three beginner mistakes
- No stop at all, “because it will come back up”.
- Moving the stop further away as the price gets close: the planned loss no longer exists.
- Choosing the stop from the amount you are willing to lose rather than from the price at which the scenario becomes wrong (the invalidation level). The right order: the invalidation level first, the quantity second. That is the subject of the guide where to place your stop-loss, together with the position size calculation.
Practise always setting a stop
In BULLSAGE Paper Trading, every position has a mandatory stop, executed automatically on real prices, and the journal measures every result in multiples of the planned risk (R): you see straight away whether a trade lost more than planned. See the free crypto trading simulator and the learn trading path.
This article is educational and is not investment advice.
Get the trading plan kit (PDF)
The plan to fill in, the eight questions to ask before acting, the position size calculation and a journal template. You will also be told when the platform opens, on 1 January 2027.