What Is a Stop-Loss?

A stop-loss is an order that closes your trade automatically when the price reaches a level you chose in advance. It decides how much you can lose on a trade – before you enter it.

How It Works

You buy Bitcoin at $60,000 and place a stop-loss at $57,600, 4 % below your entry. If the price falls to $57,600, the stop is triggered and your position is closed. For a short, the stop sits above the entry and closes the trade when the price rises to it.

The 4 % is the distance to the stop, not your loss: the position is sized so that a hit stop costs 2 % of your account – the risk of every long in our system (1.5 % for a short). How that works: position size and leverage.

Stop-Market or Stop-Limit?

• Stop-market: when triggered, the position is closed at the best available price. It gets you out – but in a fast market the price can be worse than your stop (slippage).
• Stop-limit: when triggered, a limit order is placed at your price or better. The price is protected – but in a fast move the order may not fill at all, and the trade stays open.

For protection, most traders use stop-market orders. Prices can also jump past a stop in one move, so even a stop-market order can close at a worse price than planned.

Where to Put the Stop

The stop belongs where the idea of the trade is proven wrong – not at a random percentage, and not where the loss “feels okay”. Once the stop is set, the size of the position follows from it, so that a hit stop costs exactly your planned risk: how position size and leverage relate.

R: Measuring a Trade by Its Risk

1R is the amount you lose if the stop is hit. A trade that wins three times its risk is +3R; a full loss is −1R. Results in R compare trades fairly, whatever the account size – that is why every exit message of our system states the result in R.

Break-Even and Trailing Stops

When a trade moves into profit, the stop can be moved to the entry price (break-even): from then on the trade can no longer become a full loss – only slippage could still cost a little. A trailing stop then follows the price at a distance and locks in part of the profit, while the trade stays open as long as the trend lasts. Our system manages every stop this way, and every change comes with a chart.

Stop-Loss and Liquidation on Futures

With leverage, the exchange closes a position on its own when its losses use up the margin: the liquidation. Your stop has to sit well before the liquidation price, or the exchange closes the trade first – with a larger loss. With isolated margin, only the margin of that one trade is at stake. With sensible leverage, the stop is hit long before a liquidation.

Common Mistakes

• Trading without a stop: “I'll watch it.”
• Moving the stop further away when the price comes close.
• A stop so tight that normal price noise hits it.
• Risking more on the next trade to win back a loss.

See a small, planned loss in our video “What a Losing Trade Looks Like” on the home page.

More guides: What is trend following? · Position size and leverage

Not financial advice. Trading crypto futures is highly risky, and you can lose all the money in your trading account. Past results do not guarantee future results. Read our risk disclaimer.