A stop-loss is a pre-set exit price that automatically sells your position if the stock falls to that level. It removes emotion from losing trades and protects your capital from catastrophic losses.
Hard stop: a market order triggers when price hits your level.
Guaranteed exit but may fill worse in fast markets.
Mental stop: you commit to exiting manually at a level.
Requires discipline -- emotion often delays the sell.
Trailing stop: stop moves up as price rises (e.g. 8% below peak).
Locks in profits while letting winners run.
Below a key support level (recent swing low).
Below a major moving average (MA50 for swing trades, MA200 for long-term).
A fixed percentage below entry (7-10% is common for growth stocks).
Don't place a stop at round numbers ($100, $200) -- that's where everyone puts them; institutions often 'stop hunt' to that level before reversing.
Most losses that become catastrophic started as 'I'll wait for it to come back.'
A 50% loss requires a 100% gain to break even.
Set your stop when you enter -- not after the stock has moved against you.
Related: Position Sizing • Risk/Reward Ratio • Diversification