What is a stop loss? Where to put it and how to set it

A stop loss is an order that closes your trade automatically if the price moves against you to a level you chose in advance. It's the single most important habit in trading: it turns "I hope it comes back" into a loss you planned and can survive.

How it works

• You buy gold at 2,650 with a stop loss at 2,640. If the price falls to 2,640, your platform sells and the trade closes. Your loss is $10 × your position size.
• You sell EUR/USD at 1.0850 with a stop at 1.0880. If the price rises to 1.0880, the trade closes.

Once the stop is triggered it becomes a market order, so it fills at the next available price.

Where to put it: where your idea is wrong

Don't place a stop at a round number of pips because it "feels right". Place it where the reason for the trade no longer holds:

• Below the recent swing low for a buy, above the recent swing high for a sell.
• Beyond a support or resistance level the trade depends on.
• Outside normal noise. Gold can move $5 in minutes without meaning anything. A stop inside that noise gets hit by random movement.

Then size the trade so that hitting that stop costs exactly your planned risk: the 1% rule.

Setting a stop loss in MetaTrader 5

• When opening: fill in the Stop Loss field in the New Order window.
• On an open trade: right-click the trade in the Trade tab → Modify, or drag the dotted line on the chart.
• On mobile: tap and hold the trade → Modify position.

Check the red line appears on the chart. No line, no protection.

Slippage and gaps

A stop loss limits your loss, but it doesn't guarantee the exact price:

• News spikes: in a fast market your stop can fill a few dollars or pips worse.
• Weekend gaps: if the market opens far beyond your stop, it fills at the opening price.

Some brokers offer guaranteed stops for a fee. For most traders the answer is simpler: avoid holding big positions through major news (trading the news) and keep risk per trade small.

Trailing stops and breakeven

• Breakeven: once the trade has moved in your favour, move the stop to your entry price. The trade can no longer lose (except for costs and slippage).
• Trailing stop: the stop follows the price at a fixed distance. In MetaTrader: right-click the trade → Trailing stop. It only works while your platform is running, unless your broker supports server-side trailing.

Move a stop in the direction of your trade only. Moving a stop further away "to give it room" is how small losses become big ones.

The four stop-loss rules

1. Every trade has a stop before you open it.
2. The stop goes where your idea is wrong, and the lot size comes from it.
3. Never widen it.
4. A hit stop is a normal cost of business, not a mistake.

Next: the other end of the trade, what is take profit? and the full picture in what is risk management?