Stop Loss

A stop loss (a.k.a. stop loss order) is used when day trading to limit the potential loss should a trader's position "go wrong". If you don't bother with stop losses while day trading, you won't be day trading for long, as catastrophic events that can wipe out a 'naked' position occur with ridiculous regularity. A stop loss is essentially a day trading "insurance policy" to limit the downside, should you "get it wrong". Beginning day traders should ALWAYS use a real physical stop - only advanced traders should even consider 'mental' stops. Where to place a stop is rightly regarded as the most difficult lesson to learn in day trading, and this is why the is so useful - many of the levels also double as stops.