Stop Loss
DefinitionA price level where a trade is closed to cap the loss, placed where the trade idea is proven wrong.
A Stop Loss is an order, or a level in your plan, that closes the trade when price reaches it. Its job is to limit the loss to an amount decided before entering.
The useful question is not how much can I lose? but where is my idea wrong? For a long after a pullback, that is usually just below the swing low. The stop goes beyond that level with a small buffer, then the position size is set so the loss at the stop is acceptable.
A stop inside normal price noise gets hit by volatility. A stop far beyond structure makes the trade too expensive. Read more in Where to put a Stop Loss.