Stock Market Glossary
Stop loss
Predefined loss threshold above which a position is automatically closed.
In brief: Predefined loss threshold above which a position is automatically closed.
Meaning in practice
A stop loss is mandatory for every disciplined trader. It prevents small losses that escalate into major losses – even if it is occasionally “knocked out” unfavorably, it is worth it from the perspective of any serious trading program.
Context for investors and traders
For traders, this term is most useful when preparing and executing an order. Its meaning depends on the venue, liquidity, time frame and order type. A single reading is not a reliable buy or sell decision.
How to use this in practice
In practice, the term should be linked to a specific trading plan: entry, exit, position size and costs belong together. In short time frames, spread, slippage and delayed execution can quickly outweigh the theoretical benefit of an observation.
What to keep in mind
Write down which observation confirms or invalidates your assumption before trading. This keeps the term a decision-making tool rather than a retrospective justification for risk already taken.
