What is a stop loss? How to set your exit level — and why there's no trade without one

Stop Loss (Stop Loss) is an exit order at a predetermined price: if the price reaches it — the trade closes immediately, at a small loss defined from the very first moment. This is a trader's most important protection mechanism, and it's the difference between a planned loss — an operating expense of the profession — and a pit that erases months of work.

The sentence worth memorizing: A trade without a stop is a drive without a seatbelt. Most of the time nothing happens; on the bad day — it makes all the difference.

Where to place a stop correctly

A good stop sits where The scenario of the trade has already failed — not at an arbitrary distance of "2% because I feel like it." There are two accepted methods:

• Beyond the technical level: Bought on support? The stop goes below it — because if support is clearly broken, the reason for the trade is gone. See Support and resistance.
• By volatility range (ATR): ATR measures how much the asset "breathes" in a normal day. A stop at a distance of one and a half to two ATRs gives the trade room to breathe without being stopped out by random noise.
• The good combination: Beyond the technical level and also Far enough in ATR terms — a stop that is both logical and not too tight.

The three iron rules

• Set before entry. Once there's an open position, emotion joins the conversation — and its decisions are bad. The stop is a cold-headed decision, made in advance.
• Doesn't move against the direction. Ever. "Just one more shekel and it'll turn around" is the sentence from which big losses are born. It's permitted and advisable to move a stop in your favor (Trailing) — never to widen it.
• Position size is derived from the stop, not the other way around. Determine how much you're allowed to lose on the trade (for example 1% of the portfolio), measure the distance to the stop — and from that derive how many units to buy. This way every trade risks the same amount, no matter how volatile the asset is.

And what about "they hunted my stop"?

Yes, it happens: the price drops exactly to the expected stop zone, collects them, and reverses. It's not a conspiracy against you — it's exactly what happens when everyone places a stop at the same obvious spot (one agora below the round low). The solutions: a stop a bit beyond the "expected" spot, breathing room in ATR terms, and calm acceptance of the fact that some stops will get hit — that's the cost of doing business, not a personal failure.

The alternative — trading without a stop so "I won't get hunted" — is to trade occasional scratches for the risk of a total accident. A bad trade with a stop costs a little; a bad trade without a stop can cost everything.