Stop Loss Orders in Day Trading

Updated October 23, 2026

A stop loss closes a position automatically at a predetermined level. It is the mechanism that converts an uncertain loss into a known one, which is what makes position sizing possible at all. Updated September 2026.

The types at a glance

• Market stop: the standard. When the price is reached, the order executes at the best available price

• Stop limit: only executes within a specified price range, and may not execute at all

• Physical: the order is placed with the broker and works whether or not you are watching

• Mental: you decide a level but place no order, relying on yourself to act

What a stop loss does

A stop loss order closes a trade if price moves against your position beyond a level you set in advance.

A sell stop sits below the current price and closes a long position. A buy stop sits above the current price and closes a short position.

Short EUR/USD at 1.1525 with a buy stop at 1.1535, and the position closes if price reaches that level, limiting the loss to 10 pips regardless of how far it continues.

Why the stop comes before the position size

This is the part most explanations leave out, and it is what makes the whole exercise worthwhile.

Once you know where the stop belongs, you know the distance from your entry. Combine that with the maximum amount you are willing to lose, typically 1 percent of the account, and the position size follows arithmetically.

Doing it the other way round, choosing a size and then placing a stop wherever seems reasonable, makes the loss on each trade unpredictable. The stop defines the risk, and the size adjusts to fit.

Market stops against stop limits

By default a stop loss is a market order: when the level is hit, it executes at whatever price is available.

A stop limit adds a condition, only executing within a specified price range. That sounds like an improvement and is usually the opposite.

Suppose you hold a long position with a stop at 25.50. If price gaps and the next available buyer is at 25.39, a market stop fills there and you are out. A stop limit set to execute no lower than 25.50 does not fill, and you remain in a falling position with no protection.

That is the exact scenario a stop loss exists to handle, which is why stop limits are rarely appropriate as protection in day trading. The purpose is to exit, not to exit at a preferred price.

Physical against mental stops

A physical stop is placed with the broker and executes without you. A mental stop means holding a level in mind and closing manually when it is reached.

Mental stops fail for the same reason they are appealing: they require discipline at the exact moment discipline is hardest. Watching a position move against you produces the urge to wait for a bounce, and a mental stop accommodates that urge. A placed order does not.

They also require you to be present. A connection drop, an interruption or a fast move while you are looking elsewhere leaves the position unprotected.

Placing the order

Most brokers allow the stop loss to be attached when the entry order is placed, which is the best option because the protection exists from the moment the position opens.

If the platform does not offer that, enter it manually straight after opening the position rather than intending to add it later.

If you are in a trade without a stop and cannot place one, close the position manually. An unprotected position is not a trade, it is exposure.

Where to place it

The stop belongs at the level where the reason for the trade no longer holds, not at an arbitrary distance chosen for comfort.

Day traders commonly use recent swing highs and lows. For a long position, below the most recent swing low: if price breaks that level, the structure supporting the trade has failed.

Check the distance against the instrument's typical movement. A stop placed inside the normal range of noise will be triggered by ordinary fluctuation rather than by the trade being wrong, and the Average True Range indicator gives that figure directly.

What a stop cannot do

A market stop guarantees execution, not price. If the market gaps past your level, the fill occurs at the next available price, which can be materially worse.

This matters around scheduled news, over weekends, and in thin markets. It is a reason to avoid holding leveraged positions through known events, not a reason to skip the stop, since the alternative is no protection at all.

Checklist

• Identify the stop level from chart structure before entering

• Calculate position size from that distance and your risk limit

• Check the distance exceeds normal noise, using ATR

• Place the order physically, attached to the entry where possible

• Use a market stop, not a stop limit

• Do not move the stop further away once the trade is open

See related trading guides and compare platforms in our forex brokers section.

Where to Place a Stop Loss Order

Different Types of Stop Losses

Stop loss orders: frequently asked questions

What is a stop loss?

An order closing a position at a predetermined level if price moves against you, converting an uncertain loss into a known one.

Should I use a stop limit instead?

Rarely. A stop limit may not execute at all if price gaps past the level, leaving you in a losing position with no protection.

Are mental stops acceptable?

They require discipline at the moment it is hardest and presence at the screen. A placed order removes both dependencies.

Where should the stop go?

At the level where the reason for the trade no longer holds, commonly beyond a recent swing high or low, and outside normal price noise.

How does the stop affect position size?

It determines it. The distance from entry to stop, combined with your maximum acceptable loss, gives the correct size arithmetically.

Does a stop loss guarantee my exit price?

No. A market stop guarantees execution but not price. If the market gaps past the level, the fill happens at the next available price.