Stop-losses & drawdown

Reading time ~5 min · Last updated 2026-07-17

A stop-loss is a pre-placed order (stop-market, usually with reduce-only ticked) that closes your position when the market proves you wrong. Placed well, it converts catastrophe into a routine, budgeted expense.

Where stops belong: invalidation points

A stop is not "how much pain I can tolerate" — it is the price at which the trade idea is objectively dead:

• Bought a bounce off support at 58,000? The idea dies below the level — stop at ~57,600, under the wick noise.
• No obvious level? Use volatility: 1.5×ATR from entry keeps the stop outside ordinary noise (Volatility).
• Then size the position from that stop — never tighten a stop to justify a bigger size.

Stops vs the liquidation engine

On BitBreakout, a voluntary stop-out costs the 0.04% taker fee. Liquidation costs taker fee plus the 0.04% liquidation fee, closes 70% of every position you hold, and happens at the engine's price, not yours. A stop-loss is strictly cheaper than the alternative in every scenario. There is no trade-off to weigh.

Drawdown — the unforgiving maths

Drawdown is the peak-to-trough decline of your equity. Its cruelty is asymmetric:

This is why the 1% rule and stops exist: not to avoid losing (impossible) but to keep every loss in the shallow, recoverable zone. Note that the contest itself agrees — maximum drawdown is a leaderboard tie-breaker, so smooth equity curves literally rank higher.

Managing winners

Stops are also how you protect profit: after a strong move, trail the stop to break-even (a free trade) or behind each new higher low. The discipline question — "would I still be in this trade if my stop were at X?" — replaces the emotional one — "do I feel like taking profit?".