A stop-loss is an order or rule that automatically closes a position once a predefined loss level is reached. It is one of the most important risk management tools in active trading. The stop-loss limits the maximum loss per trade to a predefined amount and protects against uncontrolled losses during unexpected market movements. Stop-loss placement should be based on structured analysis, such as below a support zone, below a recent low, or at a distance defined by market volatility. It is important to note that during extreme volatility or price gaps, execution may occur at a different level due to slippage. Nevertheless, the stop-loss remains an essential component of any disciplined trading strategy.
