A stop loss is a pre-commitment device, not a magic shield against losses. Three quick checks before you act: 1. Name the mechanism in plain English: Stops work by forcing discipline, not by preventing loss. A stop set too tight gets triggered by noise. A stop set too loose defeats its purpose. 2. Say why it matters for behavior or portfolio decisions: Good stop design requires understanding the volatility of the position and the invalidation point of the thesis. 3. Set the review question: Write down the state variable you would monitor first if this thesis started to drift. Market translation: Setting a stop at 2% below entry on a stock with 3% daily volatility almost guarantees you get stopped out before the thesis can develop. Failure mode: The mistake is setting stops based on psychological comfort rather than on the asset's actual volatility and your thesis invalidation point. The point is not to memorize the label. The point is to know what variable is actually doing the work.