Stop-loss
Stop-loss — A resting order that closes a position at a level you chose in advance — the thing that turns an unknown loss into a decided one.
A stop-loss does not protect you from losing. It converts a loss of unknown size into a loss of decided size, which is a smaller claim and a far more useful one — every risk measurement downstream depends on that number existing before the trade rather than after.
In plain English
A stop-loss is an order sitting at a price, instructing your broker to close the position if it trades there. Its function is not to prevent losses; it is to make them finite and known in advance. Without one, the size of a loss is decided by whenever you finally cannot stand it, which is not a plan and cannot be measured.
Everything else follows from it. Position size is computed from the stop distance. R is defined by the entry-to-stop distance. Break-even win rate depends on losses averaging 1R. Remove the stop and all three become undefined — not inaccurate, undefined.
The critical discipline is that the stop must be set before entry and, for measurement purposes, never re-benchmarked afterwards. Moving a stop to breakeven is a legitimate management decision; recomputing your R against the new stop is not, because it retroactively erases the risk you actually accepted.
The formula
Risk per unit = |entry − stop| Risk in money = risk per unit × value per unit × size R = result ÷ risk per unit
- The stop level should invalidate the idea behind the trade. If price reaching it does not change your view, it is in the wrong place.
- A stop chosen to make the position size comfortable is a stop that will be hit.
A stop-loss is not a guarantee of price. It is a guarantee of ACTION at a price — the position gets closed at the best available level once that price trades, which in a gap can be considerably worse.
Worked example — the demo account
What a statement records about stops is limited, and worth knowing precisely. Here is what the demo account’s file contains.
| S/L column present | Yes | MT4 writes it for every row |
|---|---|---|
| What it holds for a closed trade | the level at export time | |
| Whether it shows the ORIGINAL stop | No | |
| Whether it shows a stop that was moved | only the final one | |
| Planned risk, in money | not recorded anywhere |
A statement can tell you a stop existed. It cannot tell you where it started, and it never records what you intended to risk.
This is why TapeSheet asks you to type the planned risk into a trade’s journal panel rather than inferring it. An inferred figure would be right for mechanical traders and quietly wrong for everybody who manages a position — and being quietly wrong for the people who most need the number is worse than not offering it.
It is also why the journal field is worth the thirty seconds. Once planned risk is entered, every result in the file becomes an R-multiple and the whole record becomes comparable at once.
Every figure above is from the demo account TapeSheet ships with — 96 closed trades, generated from a fixed seed. Open the same account →
What this does not tell you
The caveat is the part worth reading. Most tools put it in a footer, if they print it at all.
- It is not a price guarantee. In a gap — over a weekend, on an announcement, on a central-bank surprise — the next traded price can be far beyond your level, and that is where you get out. The January 2015 franc move is the standard example precisely because stops were irrelevant to the outcome.
- A guaranteed stop is a different product. Some brokers offer them, usually for a premium or a wider spread. If you have not paid for one, you do not have one.
- Nothing about whether the level was sensible. A stop three pips from entry on a volatile instrument will be hit by noise, and the arithmetic will faithfully size a large position around it.
- The statement will not tell you if you moved it. Only the final level is exported, so a stop widened in the moment is invisible in the file — it shows up as a loss larger than 1R, and only if you recorded the original risk.
Where TapeSheet shows it
The S/L level from your statement appears in each trade’s detail drawer, labelled as the level at export time rather than as the original stop. The journal panel’s planned-risk field is the input that makes R possible, and the drawer explains why it is a field rather than a computation.
Questions
Do brokers hunt stops?
Clustered stops are real and getting filled just before a reversal is a genuine experience, but the usual cause is not your broker looking at your order. Stops congregate at obvious levels — round numbers, recent highs and lows — and those are exactly the levels large participants target for liquidity. The remedy is placing stops where the idea is invalidated rather than where everybody else has put theirs.
Is a mental stop as good as a resting one?
Only for somebody who has never once failed to act on it, which is a smaller group than believes itself to be in it. A resting order executes when you are asleep, in a meeting, or persuading yourself that the level is about to hold. Its whole value is that it does not require you to be right at the worst moment.
Should I use a trailing stop?
It is a trade-off rather than an improvement. A trailing stop protects unrealised profit and takes you out of trades that would have continued after a normal retracement — so it raises the average win on some trades and cuts it short on others. Whether it helps is specific to your instrument and timeframe, and it is answerable from your own record rather than from advice.
Related terms
See your own statement, analyzed
Drop an MT4 or MT5 statement on the page and the whole dashboard renders in about three seconds. No signup, no upload — the file is parsed inside your browser tab and never leaves your device.
Analyze my statementAll glossary terms ·Free trading journal ·MT4 statement analyzer ·MT5 report analyzer