Stop loss

Every trade needs an exit for the case where you are wrong. A stop loss writes that exit down in advance. If price reaches the level, the position closes on its own, whether or not you are watching.

How a stop loss triggers

A stop loss on a buy position sits below the entry and is checked against the bid, because closing a buy means selling. On a sell position it sits above the entry and is checked against the ask.

That detail matters for short trades. When spreads widen at the daily rollover, the ask can jump and trigger a short's stop even though the bid line on your chart never reached it.

A stop loss is a stop order. Once triggered it becomes a market order and fills at the next available price. In a fast move or a weekend gap, that can be several pips past your level.

A trailing stop moves the stop loss behind price as the trade gains. In MetaTrader it runs in your terminal, not on the server, so it stops trailing when the terminal is closed.

Sizing a trade from the stop

The stop also tells you how big the trade can be. Decide how much money you accept losing, then divide it by the stop distance times the pip value of one lot.

An example with illustrative numbers: a $2,000 account risks 1%, which is $20. The stop is 25 pips away on EUR/USD, where one pip on a standard lot is worth $10.

Lots = $20 ÷ (25 × $10) = 0.08 lot. On 0.08 lot a pip is worth $0.80, so if the stop fills at its level the loss is 25 × $0.80 = $20.

The lot size calculator runs this sum for any pair and account currency. Many traders pair the stop with a take profit, which closes the trade at a target instead.