Glossary
Stop Loss
Selling to cap a loss before it grows
A stop-loss means selling once a loss passes a set level, before it grows further. Realising a loss is psychologically the hardest action in investing, and it is also close to the only defence against a catastrophic one.
Losses are not symmetrical. Down 50% needs a 100% gain to recover; down 80% needs 400%. That asymmetry is why cutting early and holding to the end produce completely different outcomes.
Set the level before you buy. Deciding after you are underwater lets emotion make the call. Common thresholds sit around 7 to 10%, and placing the order in advance removes the need for willpower at the moment it matters.
Stops are not a cure-all, though. Set them too tight and ordinary volatility keeps knocking you out while fees accumulate. Choose a level wide enough to say honestly that your original judgement was wrong. If you find yourself stopping out often, the problem may be your entries rather than your stop level. Go back and ask why you bought at that price.