Stop Loss in Trading: What It Is and Where to Put It

What is a stop loss?

A stop loss is an exit level decided before you enter. For a long trade it sits below the entry; for a short, above. When the price reaches it, you exit — ideally with an order already sitting at the broker, so the decision is made while you are calm.

Stop-loss order types

Order	How it works	Watch out for
Stop-loss market (SL-M)	When the trigger price is hit, a market order is sent	Fills at the next available price — can be worse in fast moves or gaps. Some exchanges and brokers don’t allow it for options.
Stop-loss limit (SL)	When triggered, a limit order is placed at your limit price	If the price jumps past your limit, it may not fill at all — leave a gap between trigger and limit.
Trailing stop	The stop follows the price as the trade moves your way	See trailing stop loss.
Mental stop	You exit by hand when the level breaks	Easy to hesitate or move. Use only if you always act on it.

Also check how long the order lives: some brokers cancel intraday stop-loss orders at the end of the day.

Example of a price gap through a stop: trigger 100.00, limit 99.50, next price 98.80; the SL-M order fills at 98.80 and the SL limit order does not fill — Example prices. In a gap, a stop-loss market order fills at the next price; a stop-loss limit order can be skipped entirely.

Where to put your stop loss: 5 ways

Where the idea is wrong. Below the support, swing low or range you are trading from (above it for shorts). Ask: “At what price would I admit I was wrong?”
Beyond the signal candle. Below the low of the candle that triggered a long (above the high for a short). Fast and objective for breakout and momentum trades.
By volatility (ATR). 1.5–3 × the Average True Range from the entry, so normal noise doesn’t hit it.
Beyond a moving average or VWAP that the trade depends on.
Time stop. Exit if the trade hasn’t moved your way after a set number of candles — a stale trade is often a wrong one.

Add a buffer. Exactly at the swing low or a round number is where many stops cluster. A small buffer beyond it — a few ticks, or a fraction of ATR — avoids getting taken out by the wick that grabs everyone’s stops.

Candlestick chart of a long entry at 1,040 with three stop options: below the signal candle at 1,017, 2.5 times ATR at 1,005, and below the swing low at 997, with the share count for ₹2,000 of risk at each — Three valid stops for the same entry. Each risks the same ₹2,000; only the number of shares changes.

Stop losses on option buys

When you buy an option, you can place the stop on the premium or on the underlying. A premium stop is exact in money: buy the NIFTY 24500 CE at ₹152.50 with a stop at ₹128, and the loss is ₹24.50 × 75 = ₹1,837.50 per lot. A stop on the index level (for example, exit if Nifty closes back below the breakout) matches the chart idea better, but the premium you exit at depends on time decay and volatility too, so the loss in money is less certain. Many option buyers use the chart level to decide and a premium stop as the hard limit at the broker.

Then size the trade from the stop

Decide the stop first, then the quantity: quantity = money at risk ÷ distance to the stop. A wide stop means a smaller position, not a bigger loss. The stop loss calculator and position size calculator do both.

Common stop-loss mistakes

Too tight to make the position bigger — you get stopped out by noise, and fees eat a large share of each trade.
Moving the stop further away once in the trade. Move a stop only to reduce risk.
No stop at all on “sure” trades — the ones that become the biggest losses.
Same distance for every market, ignoring volatility.
Re-entering immediately after being stopped out, out of frustration.

How a journal helps

Record the stop you planned and where you actually exited. Over a month the journal shows how often you hit your stop, how often you moved it, and what moved stops cost in R — Profit Prism’s Leaks report flags losses that went past −1R.

Frequently asked questions

What is a stop loss in trading?

A stop loss is a price, decided before entering, at which you exit a losing trade — below the entry for a long and above it for a short — so the loss stays at the amount you planned.

Where should I put my stop loss?

Where the trade idea is clearly wrong: beyond the swing low or high, support or resistance, or the signal candle, or a multiple of ATR away — with a small buffer, then size the position from that distance.

What is the difference between SL and SL-M orders?

An SL (stop-loss limit) order places a limit order when triggered and may not fill if the price jumps past the limit. An SL-M (stop-loss market) order sends a market order when triggered, so it fills but possibly at a worse price.

How far should a stop loss be?

Far enough that normal price noise does not hit it — often 1.5 to 3 times ATR or just beyond a clear chart level — and no further than the point where your trade idea is wrong.

Should I ever move my stop loss?

Only to reduce risk, for example trailing it behind a winning trade. Moving a stop further away to avoid a loss is one of the most common reasons small losses become large ones.

See your own numbers

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For education only. Not investment advice. Trading involves substantial risk of loss.