What Is a Stop-Loss and How Is It Set?
What is a stop-loss?
An order that closes a position when price reaches a preset level. Its purpose is to cap the loss of a trade from the start.
Ways to set it
Percentage-based (for example 5% below entry), structure-based (beyond a nearby support or resistance) and volatility-based (a multiple of ATR) methods are used.
Trailing stop
As price moves in your favor the stop is moved along, locking in part of the gain, and it can be pulled to break-even.
Common mistakes
A stop that is too tight is triggered by ordinary noise; one that is too far enlarges the loss. Moving the stop further away after entry breaks discipline.
Triggering and fill price
A triggered stop becomes a market order and the fill price can differ from the stop price[1][2]. A stop-limit order bounds that risk with a limit price, but the order may not fill at all[1].
Things to watch
When price gaps, the order can fill at a worse price than the stop level. This page is educational, not investment advice.
Frequently asked questions
- What happens when a stop order is triggered?
- It becomes a market order and the fill price can differ from the stop price[1][2].
- Does a stop-limit order remove that risk?
- A stop-limit order bounds that risk with a limit price, but the order may not fill at all[1].
Related guides
Sources
- Stop Orders: Factors to Consider During Volatile Markets. FINRA, 2025. Accessed: 2026-10-22.
- Stop, Stop-Limit, and Trailing Stop Orders (Investor Bulletin). Investor.gov (U.S. SEC Office of Investor Education and Advocacy), 2017. Accessed: 2026-10-22.