Stop Loss
Definition
An order to sell when price reaches a specified level, limiting potential losses on a trade.
Detailed Explanation
A stop loss is a risk management tool that automatically exits a position when price moves against you to a predetermined level. It limits losses to a known amount before entering the trade. Proper stop placement is based on technical levels (support, pattern lows) rather than arbitrary percentages. The distance from entry to stop determines your risk per share, which is used to calculate position size.
Example
You buy AAPL at $180 with a stop at $175 (below recent support). If price drops to $175, your position automatically sells, limiting loss to $5/share.