What is a Stop Loss and why can it save you from losing money

Trading is not just about seeking profits.

Most of the success comes from avoiding large losses, and for that, there is a tool that every beginner should master from day one: the Stop Loss.

🔹 What is a Stop Loss?

A stop loss is an automatic order that executes a sale when the price drops to a point you define.

In other words:

👉 it is a loss limit that you set to protect your money.

If the market suddenly drops or moves against you, the stop loss activates automatically, even if you are not connected.

🔹 Why is it so important?

Because in trading, it’s not about winning all the time.

It’s about not losing much when you make a mistake.

Most beginners lose money for these reasons:

They don’t know when to exit.

They cling to trades that are already going poorly.

They hope “it will recover” (and sometimes it doesn’t).

They don’t have a clear loss limit.

A stop loss eliminates that problem.

It protects you from emotions, impulses, and sudden drops.

🔹 Simple example to understand it

Let’s say you buy a coin for 100 dollars.

You decide that if it drops to 95 dollars, you no longer want to stay in the trade.

So you place a Stop Loss at 95.

If the price falls to that level:

✔ the coin is sold automatically

✔ you control the loss

✔ you prevent a small drop from becoming a catastrophe

Without a stop loss, you could watch the price drop from 100 → 80 → 60… and then the emotional and financial blow is greater.

🔹 How to choose your stop loss?

Here come concepts of technical analysis, but for beginners there are 2 simple methods:

1. Behind an important support

If the support breaks, the price usually falls further.

2. Fixed percentage of risk

Example:

“I will lose a maximum of 3–5% per trade.”

This gives you discipline and control.

🔹 The most common mistake: Never using it

Many new traders believe that “they will control it manually.”