Stop Loss
A stop loss is a pre-determined exit price that limits loss on a losing trade. It's the foundation of position sizing and risk management — you cannot calculate position size without it.
Definition
Stop losses define your maximum loss before you enter a trade. They serve two purposes: capping downside risk, and enabling position sizing math. 'Mental stops' — stops you remember but don't enter — fail under emotional pressure. Hard stops (orders placed with the broker) work automatically. Stop placement should be technical (below support, above resistance) not dollar-based.
Formula
Risk per Share = Entry Price − Stop Loss Price
Example
Buy at $50, stop at $48. Risk per share = $2. If risking $200, position size = 100 shares.