Imagine you buy shares in a company at 100 kroner per share. You are optimistic, but you know the market is unpredictable. A stop-loss lets you say: "If the price falls to 85 kroner, sell automatically" — so you do not have to watch your losses grow.
It is one of the most important risk management tools an investor has access to.
How does a stop-loss work?
A stop-loss is a conditional order you place with your broker. When the price reaches or falls below the level you have set, the order is triggered and the stock is sold — automatically, without you needing to monitor it.
Example: You buy Equinor at 320 kroner. You set a stop-loss at 288 kroner (10% below). If the price falls to 288 kroner, your broker sells automatically — limiting your loss to 10%.
Three types of stop-loss
1. Fixed stop-loss
You set a fixed price — for example 85 kroner. Simple and predictable, but does not follow the price if the stock rises.
2. Trailing stop-loss
The limit follows the price upward at a fixed distance — for example always 10% below the highest price. If the stock rises from 100 to 130 kroner, the stop-loss automatically moves to 117 kroner. You lock in gains while still participating in the upside.
Trailing stop-loss is especially useful in trends — you let your winners run, but protect yourself against sudden reversals.
3. Stop-limit order
A variant where you set both a trigger price (stop) and a minimum price (limit). The stock is only sold if it can be sold at the limit price or better. The downside: in a fast-moving decline, the order may go unfilled.
Where do you set your stop-loss?
There is no universal rule, but here are three common methods:
- Percentage-based: A fixed percentage below the purchase price — typically 5–15% depending on how volatile the stock is
- Technical level: Just below an important support level in the price chart — where many investors expect the price to hold
- ATR-based: Based on the stock average daily range (Average True Range) — gives room for normal volatility without being triggered unnecessarily
Do not set your stop-loss too tight! A very narrow stop-loss can be triggered by normal daily price swings — and you end up selling right before the stock turns back up.
Stop-loss on Oslo Stock Exchange in practice
Most Norwegian brokers — such as Nordnet and DNB Markets — support stop-loss orders directly in their trading platforms. You place the order when you buy, or afterward via conditional orders.
Note that stop-loss orders on Oslo Stock Exchange are usually only valid for one trading day and must be renewed, while some brokers offer "good till cancelled" (GTC) orders that run until triggered or cancelled.
Advantages and disadvantages
✅ Advantages
- Limits losses automatically — no discipline required in the moment
- Protects against sudden price drops while you sleep or are busy
- Removes emotion from the selling decision
- Trailing stop-loss lets you lock in gains continuously
⚠️ Disadvantages
- Can be triggered by short-term volatility — you sell and the stock rises again
- In a fast crash, the actual selling price may be lower than the stop price (gap risk)
- Stop-limit orders may go unfilled in a free fall
- Rarely suitable for long-term investors with high tolerance for swings
Is stop-loss right for you?
Stop-loss is most useful for:
- Active traders dealing in individual stocks
- Investors in volatile stocks or markets
- Those who cannot monitor the market daily
For long-term index fund investors, stop-loss is rarely relevant — short-term declines are a natural part of the strategy, and selling in panic is often the biggest mistake you can make.
Rule of thumb: A stop-loss is not foolproof, but it is one of the few tools that forces you to decide in advance how much you are willing to lose — before emotions take over.