# Stop-Loss

> A stop-loss is a pre-set exit that closes a trade at a defined loss. Learn how stop orders work, where traders place them, and how a stop sets your 1R.

Canonical: https://www.journalx.io/glossary/stop-loss

A **stop-loss** is an order that closes a position once price reaches a level you picked before you entered, so the trade can only cost you a known amount. Traders also call it a stop order, a protective stop, or just "the stop." Its job is not to be right. Its job is to make the size of being wrong something you decided in advance, in a calm moment, rather than something the market decides for you while you watch.

The stop does more work than most new traders realize. Beyond capping one loss, it defines the risk unit that everything else in your record is measured in. The distance from entry to stop is 1R, and once that number exists, your [position sizing](/glossary/position-sizing) has an input, your [risk-reward ratio](/glossary/risk-reward-ratio) has a denominator, and every closed trade gets an [R-multiple](/glossary/r-multiple) you can compare against every other trade.

## How a Stop-Loss Works

A stop-loss sits at a price away from your entry, on the losing side. For a long position it sits below your entry. For a short it sits above.

The order is dormant until price touches your stop price. At that point it activates:

- A **stop order** becomes a market order and fills at the next available price.
- A **stop-limit order** becomes a limit order and fills only at your limit or better.

That distinction matters more than it sounds. The SEC's investor bulletin on stop orders puts it directly: "The stop price is not the guaranteed execution price for a stop order," and a stop "may be triggered by a short-term, intraday price move that results in an execution price ... substantially worse than the stock's closing price for the day." ([Stop, Stop-Limit, and Trailing Stop Orders, U.S. SEC](https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-15)) A stop caps your intended risk. It does not cap your actual risk in a gap, an earnings move, or a thin market.

![A candlestick chart with an entry at $50.00, a stop-loss at $47.20 sitting just below the swing low, and the $2.80 gap between them marked as one R of risk](https://assets.journalx.io/marketing/glossary/stop-loss/stop-loss-anatomy.avif)

Reading the chart above: the blue candle is the entry at $50.00, the dashed red line is the stop at $47.20, and the shaded band between them is everything the trade can cost. The stop sits just under the circled swing low, the price that would say the pullback had failed, so the $2.80 gap is not an arbitrary amount. It is the distance to the level that disproves the idea.

## The Main Types of Stop-Loss Order

| Type              | What it does                                                                         | The trade-off                                                                     |
| ----------------- | ------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------- |
| **Stop (market)** | Becomes a market order at your stop price                                            | Fills almost always, but the fill price can be worse than your stop               |
| **Stop-limit**    | Becomes a limit order at your stop price                                             | Protects your fill price, but can leave you in the position if price runs past it |
| **Trailing stop** | Stop price follows price by a set distance or percentage as the trade moves your way | Locks in more of a winner, but a normal pullback can take you out early           |
| **Mental stop**   | No resting order, you exit manually at your level                                    | No visible order in the book, but it depends entirely on you acting               |
| **Time stop**     | Exit after a set period if the trade has not worked                                  | Frees up capital and attention, ignores the price level entirely                  |

Most platforms also let you attach a stop to your entry as a bracket, so the protective order goes live the moment you get filled. That removes the window where you are in a position with nothing behind it.

## Where Traders Place a Stop-Loss

There is no correct distance in the abstract. A stop is a statement about the trade idea, so it belongs at the price where the idea stops being true. Three common approaches:

**Structure.** Place the stop just beyond the level that would invalidate the setup, such as the swing low a pullback bounced from, or the other side of a range. In the chart above, the trade is a pullback that reclaimed $50.00. The pullback low is $47.40. A stop at $47.20 sits below it, so the trade survives normal noise and exits only if the pullback actually fails.

**Volatility.** Size the stop against how much the instrument moves on its own, usually a multiple of average true range. A stop 1.5 to 2 times the daily range away gives a swing trade room that a fixed 1% stop would not. This adapts across symbols, which a fixed dollar amount never does.

**Fixed percentage or amount.** Some traders use a flat rule, such as 2% below entry. It is simple and consistent, and it ignores what the chart is doing, which is both the weakness and the appeal.

Pick the stop level first, from the chart. Work out the position size second, from the stop. Doing it the other way round (deciding you want 500 shares, then putting the stop wherever keeps the risk comfortable) is the most common way traders end up with stops that have nothing to do with the trade.

## A Worked Example

You buy 100 shares at $50.00 with a stop at $47.20.

| Item               | Value           |
| ------------------ | --------------- |
| Entry              | $50.00          |
| Stop               | $47.20          |
| Stop distance (1R) | $2.80 per share |
| Shares             | 100             |
| Risk on the trade  | $280            |
| Target at 3R       | $58.40          |

If the stop is hit, you lose $280 and record the trade as −1R. If you exit at $58.40, you made $840 and record +3R. If you get nervous and close at $53.00, you made $300, which is +1.07R. Same trade, three outcomes, all measured against the same unit because the stop set it.

## What Happens When You Move a Stop

Widening a stop after entry feels like patience. Arithmetically it is a decision to lose more money.

![Dollars at risk on the same 100-share trade as the stop is moved from $47.20 to $45.80 to $44.40, rising from $280 to $420 to $560](https://assets.journalx.io/marketing/glossary/stop-loss/stop-loss-widening.avif)

Each bar above is the same 100-share trade entered at $50.00. Only the stop moved, from the planned $47.20 out to $45.80 and then $44.40, and the money at stake went from $280 to $420 to $560. Two small adjustments doubled the loss.

There is a second cost that is easy to miss. Your journal still thinks 1R was $280. When the trade closes at −$560, it gets recorded as −2R against a plan you abandoned, and every metric built on R (your [expectancy](/glossary/expectancy), your average loss, your R distribution) is now measuring a strategy you did not actually trade. One moved stop corrupts one trade. A habit of moving stops corrupts the whole dataset.

Tightening a stop mid-trade has the mirror problem: you reduce risk, but the trade that gets stopped out at −0.4R was never given the room the plan called for, and your data will suggest the setup fails more often than it does.

## Stop-Loss, Position Size, and Risk Per Trade

These three are one system, and confusing them causes most sizing mistakes.

- **Stop-loss** sets the distance, in price, that the trade can go against you.
- **[Risk per trade](/glossary/risk-per-trade)** sets the money you are willing to lose, usually a fixed percentage of the account.
- **[Position sizing](/glossary/position-sizing)** is the arithmetic that reconciles the two, dividing your risk budget by the stop distance to get the quantity.

A wider stop does not mean more risk. It means fewer shares. That is the whole point of running them together.

## Key Takeaways

- A stop-loss is a pre-set exit that caps what a trade can cost, decided before you are emotionally invested in the outcome.
- The distance from entry to stop is 1R, the unit your [R-multiples](/glossary/r-multiple), risk-reward ratios, and position sizes are all built on.
- A stop order does not guarantee your fill price. Gaps and fast markets can fill you well past the level.
- Place the stop where the trade idea is disproven, then size the position to it, not the other way round.
- Moving a stop mid-trade changes both the loss and the accuracy of every metric you record afterwards.

## Common Mistakes

**Trading without one.** With no stop, 1R is undefined, position size is a guess, and the loss is capped only by how long you can watch it.

**Placing the stop at a comfortable dollar amount.** A stop at "$200 of risk" is placed at whatever price $200 happens to land on, which may be in the middle of the setup's normal noise. The market does not know your account size.

**Sitting on obvious round numbers.** A stop exactly at $50.00 or exactly on the visible swing low is where a lot of resting orders sit. Placing yours a little beyond that cluster costs a few cents of risk and avoids the most crowded price.

**Stops that are too tight for the setup.** If your winners routinely spend time 0.7R underwater, a 0.5R stop will kill trades that would have worked. This is exactly what [maximum adverse excursion](/glossary/maximum-adverse-excursion) is for, and it is measurable rather than a matter of opinion.

**Cancelling the stop "just for a moment."** The moment is usually the one that mattered.

## How JournalX Tracks Your Stop-Losses

JournalX takes your stop as a first-class input rather than an afterthought. When you plan a trade before taking it, you record the entry, the stop, and the target, so your 1R is captured at the moment it was decided. Once the trade closes, the journal compares what you planned against what you did, and reports the result in R alongside dollars.

That comparison is where the useful patterns show up. You can filter to trades where the stop was moved and see what it cost across a full sample, group R-multiples by setup to see which stops are too tight, and read it all next to your [expectancy](/glossary/expectancy), [win rate](/glossary/win-rate), and [maximum drawdown](/glossary/drawdown). The stop stops being a number you set and forget, and becomes something you can actually review.