Stop-Loss Order

A particular type of limit order used to minimize losses on a bad trade. The order is set at a specific price point below the entry price on a long trade, and above the entry price on a short trade. On an ideal entry price, the “stop-loss” is typically set on the opposite side of the support or resistance trendline from the trade price. If the price moves against the trade direction and reaches the limit price, the order is executed and the position is closed (or indicated lot size is exited). Conservative traders, or those who don’t trade actively throughout the day, often use stop-losses to minimize risk, while other traders prefer not to use them.