Stop-loss: what it is, where to place it and why it gets hit
A stop-loss is the main tool that separates trading from a lottery. Here is how it works, where to place it and which mistakes make it useless.
1. What a stop-loss is
A stop-loss is a price set in advance at which a position is closed with a limited loss. You bought at 100 and set a stop at 96 — if price falls to 96, the exchange closes the trade for you, even if you are asleep or not looking at the chart.
You need a stop not because you "expect a loss", but because any trade idea can turn out to be wrong. A stop turns an unknown, potentially huge loss into one you calculated beforehand.
2. Stop-market, stop-limit and trailing stop
| Type | How it works | Pros / cons |
|---|---|---|
| Stop-market | When price touches the level, a market order is sent. | Almost always fills, but the price may be worse (slippage). |
| Stop-limit | When price touches the level, a limit order is placed at your price. | Price is under control, but in a fast move the order may not fill — and the loss keeps growing. |
| Trailing stop | The stop follows price automatically at a set distance. | Protects profit in a trend, but is easily triggered by normal pullbacks. |
For loss protection, a stop-market order is usually more reliable for beginners: better to exit slightly worse than not to exit at all.
3. Where to place a stop
Place the stop where your idea stops being valid, not at a "convenient" percentage.
- By market structure. Buying at support — stop below support with a small buffer. Buying a pullback in an uptrend — stop below the last swing low: breaking it breaks the trend.
- Accounting for volatility. If a coin usually moves 3% per candle, a 1% stop will be hit by ordinary noise. A useful guide is the average candle range (the ATR indicator): no closer than 1–1.5 ATR from entry.
- Not on round numbers and not exactly at the level. Many traders' stops cluster just below 60,000 or below "equal" lows — price often dips there and comes back. Leave a buffer.
Only then calculate the position size: a wide stop means a smaller size, a tight stop a larger one. The money risk stays the same. Details in "How to calculate position size".
4. Why stops get hit
- The stop sits inside normal noise — too close to entry for this volatility.
- The stop is where everyone else's is — exactly at a level or round number where price likes to "spike" (liquidity grab).
- A poor entry — in the middle of a move, far from the level. The logical stop ends up far away, so it gets pulled closer "to lose less".
- News and thin liquidity — candles grow long wicks at such times.
If the stop was hit and price then went your way, it is not always a mistake. A good stop sometimes triggers: that is the price of insurance. It is a problem only if it happens systematically — then review stop placement or entries using your trading journal.
5. Mistakes that make a stop useless
- Moving the stop as price approaches it. That is how 1% risk quietly becomes 5–10%.
- No stop "because I'll exit manually". In a sharp move, hands are usually too slow — or don't move at all.
- A stop beyond the liquidation price on futures: the exchange closes the position before your stop and takes the margin.
- Setting a stop without recalculating size. A stop without position sizing does not limit risk as a percentage of the account.
6. Pre-trade checklist
- I know at what price my idea becomes wrong.
- The stop is beyond a level/extreme with a buffer, not on a round number.
- The distance to the stop is larger than normal noise (ATR).
- The size is calculated from money risk — for example, in the position calculator.
- On futures, the liquidation price is beyond the stop.
- I will not move the stop after entry.
More on stops, orders and risk management — in course modules 3 and 11.
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Watch the free lessonThis material is educational and is not investment advice. Trading, especially with leverage, carries a risk of losing capital.