A price level set in advance for exiting a trade to protect capital and limit losses if the market moves against you. As a rule of thumb in options, consider activating the stop-loss when you lose 50% of the premium value at most.
What this limit is
A Stop Loss (Stop Loss) is a preset order that takes you out of a position at a price chosen in advance: a contract you write with yourself before the pain starts. Its job is not to prevent losses, which are part of the trade. Its job is to keep them at a size you can survive and carry on.
Where to place it
Behind a level whose break means the thesis has failed: under the structural support you bought for, behind the setup low, at a distance of a volatility multiple that respects the asset's noise. The right stop answers “where am I wrong?” and not just “how much can I afford to lose?”
Stop and size are twins
A sound equation starts from the stop and does not end there: set the logical stop first, then derive the size so that the loss if it is hit is an acceptable share of capital. Whoever sets the size first and then looks for a stop that “fits” reverses the logic and ends up with a dead stop.
Hypothetical example
Buying at $84 on a bounce-from-support thesis at $82: the logical stop is $81.4 (below support with a noise margin). Risk is $2.6 per share. Someone willing to lose $520 buys 200 shares. Both numbers came from the structure, not from mood.
Common mistake
Cancelling it or “moving it down” as price approaches: the moment it was designed for is the moment it usually gets betrayed. A stop is a contract you honor or a tool you do not own. There is no middle ground.
Where to see it on the platform
The trading journal requires you to document the stop for every trade and derives the size from it automatically, and the Gamma dashboard points to the structural levels behind which stops make sense.
