Method · Risk management

Stop-loss in the stock market:
protecting your positions

The stop-loss is the most essential capital-protection tool. On European small caps with limited liquidity, an unprotected position can lose 20-30% in a single session on a bad set of results. The stop-loss turns open losses into losses that are defined and accepted in advance.

Updated May 2026 7 min read Beginner

What is a stop-loss?

A stop-loss is a conditional sell order placed at a price level below the purchase price. When the price reaches that level, the order triggers automatically and the position is liquidated — capping the loss at an amount known in advance.

Without a stop-loss, you expose your capital to potentially unlimited losses. With a well-placed stop-loss, your maximum loss on that position is defined from entry — whatever happens next.

Stop-loss and small caps: on Euronext Growth, stop-loss orders become market orders once the threshold is reached. If the order book is thin, you may be filled well below your stop level. For illiquid stocks (< €100k/day of volume), a mental stop may be more suitable than an automatic one.

The types of stop-loss

TypeHow it worksRecommended use
Fixed stopA price level defined in advance, which does not moveThe vast majority of situations
Trailing stopFollows the rising price at a fixed distance — moves up with the gainsProtecting gains on a winning position
ATR-based stopBased on average volatility (Average True Range) — adapts to actual volatilityVolatile markets, active small caps
Mental stopAn exit level decided but not set with the brokerVery illiquid small caps (<€50k/day)

How to place your stop-loss?

There are three main methods:

1. Technical-support stop (recommended)

Place the stop just below the last significant support visible on the chart. If the price breaks that support, the investment thesis is invalidated — exiting is logical. This is the method most consistent with technical analysis.

2. Fixed-percentage stop

Stop-loss = Entry price × (1 − max accepted loss %)
Example: entry at €22 with 10% max → stop at 22 × 0.90 = €19.80

3. Risk/reward-based stop

First define your price target, then calculate the stop to achieve an R/R ratio ≥ 2:

R/R ratio = (Target − Entry) ÷ (Entry − Stop)
Goal: ratio ≥ 2 — for every €1 risked, aim for at least €2 of potential gain

Stop-loss calculator

Calculate your stop-loss and risk/reward ratio
Loss if stop hit
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Loss in €
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R/R ratio
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Potential gain (€)
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The trailing stop — protecting your gains

Once a position is in significant profit (+15% or more), you can switch to a trailing stop to let gains run while protecting part of the unrealised profit.

Current price10% trailing stopProtected gain
€20 (entry)€18.00— (10% max loss)
€25 (+25%)€22.50+12.5% locked in if hit
€32 (+60%)€28.80+44% locked in if hit
€28 (correction)€28.80 → triggeredPosition sold at +44%

Combine the stop-loss with the Kelly criterion

The Kelly criterion calculates the optimal position size based on the risk per trade. Combined with a technical stop-loss, it is the basis of professional risk management on small caps.

See the Kelly guide →

Go further

Related guide
Kelly criterion — sizing
Guide
RSI in the markets
Guide
Technical analysis
Guide
Building a portfolio

Frequently asked questions

A stop-loss is a conditional sell order that triggers automatically when the price falls to a predefined level. It caps the maximum loss on a position at an amount known in advance — essential for protecting your capital on small caps.
The best method: place the stop just below the last significant technical support. Then check that the risk/reward ratio (target − entry) ÷ (entry − stop) is at least 2. Use the calculator above to verify the R/R before every entry.
There is no universal percentage. On small caps (higher volatility), 8-15% is common. The key: the stop must sit below a technical support, not on an arbitrary number. Combine it with the 1-2% rule: never risk more than 1-2% of your total capital on a single position.
A trailing stop automatically follows the rising price at a fixed distance (in % or in €). It protects unrealised gains: if the price rises to €25 with a 10% trailing stop, the stop moves up to €22.50. If the price turns down, the position is sold, protecting the accumulated gain.