Closing a position at a preset price to prevent further losses. This is not a "confirmed defeat," but a "strategic insurance premium" paid when the market invalidates your trading thesis.
How to Do It
Before entry, identify the "invalidation point" where your thesis breaks, and always place a stop order.
Effect
Contains each loss within acceptable limits, physically preventing catastrophic drawdowns.
How to Use
1. Calculate stop level based on acceptable loss
2. Place stop order immediately upon fill
3. Never cancel or move it emotionally