Definition
A stop-loss order is an instruction to the broker to automatically sell the stock if the price falls below a certain level. It is risk management in practice — you decide in advance the maximum loss you are willing to accept.
Example
You buy a stock at 100 NOK and set stop-loss at 85 NOK. If the price falls to 85 NOK the broker sells automatically. Maximum loss: 15%.
Advantages
Protects against large losses · Removes emotion from the selling decision · Useful for active traders · Lets you sleep at night
Disadvantages
Can be triggered by short-term volatility · Does not suit long-term investors · You may sell at the bottom before a recovery
"The wise person knows when they are wrong — and acts accordingly. Stop-loss is honesty in action."— Florence Scovel Shinn