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Stop-Loss Orders

beginner7 min read

The order that gets you out before a small loss becomes a portfolio-wrecking one.

A stop-lossA pre-set exit that caps your loss if a trade goes wrong. is a pre-set order that automatically sells if the price falls to a level you choose. It is the seatbelt of trading: you set it before the crash, so you don’t have to make a panicked decision during one.

ExampleYou buy at ₹100 and decide you’re wrong if it hits ₹95. You place a stop-lossA pre-set exit that caps your loss if a trade goes wrong. at ₹95. If the price falls there, your sell triggers automatically — capping the loss at ~5% instead of riding it down to ₹70 hoping it “comes back.”

Why it’s really about psychology

The stop-lossA pre-set exit that caps your loss if a trade goes wrong.’s true job is to remove you from the decision in the heat of the moment. In a falling market, fearThe two emotions that move markets and ruin accounts. and hope hijack judgment; a stop-lossA pre-set exit that caps your loss if a trade goes wrong. is the calm decision you made earlier, executing for you.

The first rule of survival isn’t picking winners — it’s cutting losers small. One uncapped loss can wipe out ten careful wins. A stop-lossA pre-set exit that caps your loss if a trade goes wrong. is how disciplined investors guarantee no single mistake ends the game.
Common mistake“I’ll just watch it and sell manually if it drops.” Almost nobody does — when it’s falling, you freeze or rationalise. The whole point of a stopA pre-set exit that caps your loss if a trade goes wrong. is to act when you won’t.
Key takeawayA stop-lossA pre-set exit that caps your loss if a trade goes wrong. auto-sells at a pre-chosen level, capping a loss and removing emotion — the core survival tool of trading.
FAQs
Where should I set my stop-loss?

At the price where your reason for buying is proven wrong — not at an arbitrary round number. It should be far enough to survive normal noise but close enough to keep the loss small. You’ll size the position from this distance (covered in the risk lessons).