Stop-Loss
A stop-loss is an order that automatically closes a position when price reaches a predefined level – the technical implementation of loss limitation. It defines a trade's risk in advance (1R) and is the basis of every position size calculation. Classic stop orders become market orders when triggered and can be filled with slippage in fast markets.
Context & Mechanics
Definition and mechanics
The stop-loss answers every trade's most important question in advance: “where is my idea invalidated – and what does that cost me?” Technically it is a resting order activated when the stop price is reached: the classic stop becomes a market order (guaranteed execution but possible slippage), the stop-limit a limit order (price control but possibly no fill on gaps). For longs the stop sits below the entry, for shorts above – where it is non-negotiable because of the unlimited upside risk.
Stop placement
A stop belongs where the setup is objectively invalid – not where the loss “feels right”: below the last swing low, below a support zone, or at ATR distances to account for normal fluctuation (ATR stop). Stops too tight inside market noise produce series of small losses despite a correct idea; stops too wide destroy the risk-reward ratio. Stop distance and account risk yield the position size – never the other way round.
Variants and discipline
The trailing stop follows price and locks in profits in trends; the break-even stop is moved to the entry after defined progress. Mental stops (only in the head) regularly fail in practice due to psychology: in a losing situation loss aversion kicks in, and “I'll exit in a moment” becomes sitting it out. The hardest discipline error is moving the stop away from price – it turns a planned 1R risk into an uncontrolled drawdown.
Why it matters for traders
Without a stop-loss there is no defined R, no position sizing formula and no evaluable statistics – it is the foundation of risk management, and on prop-firm accounts additionally the protection against daily-loss-limit violations. In the GlanWick simulator, stop strategies can be tested by way of example without real capital – GlanWick is a training and simulation tool and not a prop firm itself.
Execution Example
A trader ($100,000 account, 1% risk = $1,000 = 1R) buys a stock at $62.00 after a breakout. The last swing low sits at $60.00, the ATR(14) is $1.50.
- Stop placement: below the swing low with an ATR buffer: 60.00 − 0.5 × 1.50 = $59.25 → stop distance $2.75 per share.
- Position size: $1,000 ÷ $2.75 = 363 shares (rounded down) → position value ≈$22,500.
- Progress: the stock rises to $66. The trader moves the stop to the entry (break-even) – the trade's remaining risk is now zero, the position keeps running.
- Exit: a pullback triggers the trailed stop at $64.80 → profit $2.80 × 363 ≈ +$1,016 ≈ +1R. Without stop discipline the same pullback would have given the profit back.
Execution Risk & Errors
Moving the stop further from price after entry and multiplying the planned risk
Placing stops inside market noise where normal fluctuations trigger them in series
Using mental stops that are not psychologically held in a losing situation
Choosing round numbers and obvious levels where many stops cluster
Re-entering immediately after a stop-out without a new setup (revenge trading)
Frequently Asked
Where do I place my stop-loss?
Where the setup is objectively invalid: below the last swing low, below the relevant support zone, or at ATR distances. Stop distance and account risk then yield the position size – not the other way round.
Can a stop-loss be filled at a worse price?
Yes: the classic stop becomes a market order when triggered – gaps or thin liquidity create slippage. A stop-limit controls the price but risks not being filled at all in fast moves.
Are mental stops an alternative?
For most traders no: in a losing situation loss aversion kicks in and the planned exit gets postponed. Real orders in the market enforce the discipline that mental stops only promise.
What is the difference between a stop-loss and a trailing stop?
The stop-loss sits fixed at the invalidation level; the trailing stop follows price at a defined distance and locks in accumulated profits in trends – at the price of exiting earlier on normal pullbacks.