Stop-Loss Strategies
Implementing effective stop-loss orders to protect your capital
Documentation
What is a Stop-Loss?
A stop-loss is an order that automatically closes your position when the price reaches a predetermined level, limiting your potential losses. It's one of the most important risk management tools in trading.
Loss Protection
Automatically close losing positions to prevent catastrophic losses.
Risk Management
Enforce discipline and prevent emotional decision-making.
Capital Preservation
Protect your trading capital for future opportunities.
Types of Stop-Loss Orders
Fixed Stop-Loss
A stop-loss placed at a specific price level that doesn't change.
Advantages
- • Simple to implement
- • Clear risk calculation
- • No ongoing management
- • Predictable outcomes
Disadvantages
- • May be too tight or loose
- • Doesn't adapt to market
- • Can be hit by noise
- • No profit protection
Trailing Stop-Loss
A stop-loss that moves with the price, maintaining a fixed distance behind it.
Advantages
- • Locks in profits automatically
- • Adapts to market movement
- • Lets winners run
- • Reduces manual management
Disadvantages
- • Can be stopped out early
- • Requires careful distance setting
- • May not work in choppy markets
- • More complex to implement
Break-Even Stop-Loss
Moves your stop-loss to your entry price once the trade moves in your favor.
Advantages
- • Eliminates risk after gains
- • Psychological comfort
- • Simple to understand
- • Good for beginners
Disadvantages
- • May be too conservative
- • Can limit profit potential
- • Doesn't account for volatility
- • May not work in all markets
Stop-Loss Placement Strategies
Technical Analysis Based
Place stop-losses based on technical levels and chart patterns.
Support/Resistance
- • Below support for long positions
- • Above resistance for short positions
- • Use multiple timeframes
- • Consider volume confirmation
Moving Averages
- • Below key moving averages
- • 20, 50, 200 period averages
- • Consider trend direction
- • Use as dynamic support
Volatility Based
Adjust stop-loss distance based on market volatility.
ATR (Average True Range)
- • 1-2x ATR for stop distance
- • Adapts to market conditions
- • More accurate than fixed points
- • Reduces premature stops
Bollinger Bands
- • Outside the bands for stops
- • Adapts to volatility changes
- • Good for mean reversion
- • Consider band width
Risk-Based Placement
Place stops based on your risk tolerance and account size.
Percentage Risk
- • 1-2% of account per trade
- • Calculate stop distance
- • Adjust position size accordingly
- • Maintain consistent risk
Fixed Dollar Risk
- • Set maximum dollar loss
- • Calculate stop distance
- • Determine position size
- • Good for small accounts
Advanced Stop-Loss Techniques
Multiple Stop-Loss Strategy
Use multiple stop-loss levels for different portions of your position.
Example:
- • 50% of position: Tight stop (0.5% risk)
- • 30% of position: Medium stop (1% risk)
- • 20% of position: Wide stop (2% risk)
- • Total risk: 0.5% + 0.3% + 0.4% = 1.2%
Time-Based Stops
Close positions based on time rather than price movement.
Advantages
- • Prevents indefinite holding
- • Forces decision making
- • Good for news events
- • Reduces opportunity cost
Considerations
- • May close profitable trades
- • Doesn't consider market conditions
- • Requires careful timing
- • Not suitable for all strategies
Mental Stop-Losses
Pre-determined exit levels that you execute manually.
Advantages
- • More flexible execution
- • Can avoid slippage
- • Allows for discretion
- • No technical limitations
Risks
- • Emotional interference
- • May not execute
- • Requires discipline
- • Can lead to larger losses
⚠️ Common Stop-Loss Mistakes
- • Placing stops too close to entry (getting stopped out by noise)
- • Moving stops against you to avoid losses
- • Not using stops at all (hoping for recovery)
- • Using the same stop distance for all trades
- • Ignoring market volatility when setting stops
- • Not adjusting stops as positions move in your favor
💡 Stop-Loss Best Practices
- • Always use stop-losses on every trade
- • Set stops before entering positions
- • Consider market volatility when placing stops
- • Use technical levels when possible
- • Don't move stops against you
- • Consider trailing stops for profitable positions
- • Test different stop strategies in demo accounts