Stop-Loss

A stop-loss is an order placed when entering a trade or while it is open to automatically close the position if the price moves against the trader and reaches a predetermined loss level.

How it is calculated and used: The trader determines a specific price level based on technical analysis or a fixed percentage of capital. Once the price hits this level, the trade closes automatically without manual intervention.

Importance to the trader:

• Limits the size of potential losses on each trade.
• Instills discipline and protects against emotional decision-making during market fluctuations.
• Serves as an essential tool within any risk management strategy.

Common mistakes:

• Placing it too close to the entry price, causing it to trigger on normal market volatility.
• Not using it at all under the assumption that the price will reverse, which can compound losses.
• Overlooking potential slippage when it triggers during major economic news releases.

It is always recommended to define the stop-loss level before entering any trade as part of a disciplined trading plan. Usage on the EVEST platform: The EVEST platform allows traders to add a stop-loss directly when opening a trade or modify it later from the open positions management screen, displaying an instant estimate of the maximum loss in the account's base currency before confirming the order.

When to use it: It should be used on virtually every trade without exception, particularly in highly volatile markets such as forex and CFDs, as well as when trading relatively large position sizes.

Risks: A stop-loss may close a trade prematurely if placed too close to the entry price. It can also be affected by price slippage in fast-moving markets, resulting in execution at a slightly worse price than the specified level.

Additional common mistakes: Many traders on EVEST and other platforms fall into the trap of manually removing their stop-loss as the price approaches it in the hope of a reversal—an emotional behavior that magnifies losses instead of containing them.

Relationship with risk management: The stop-loss is the cornerstone of any professional risk management framework, as it caps the maximum acceptable loss per trade in alignment with a fixed percentage of total capital. EVEST allows linking this percentage to the position size calculator to maintain discipline across every trade.