A predefined exit that closes a losing trade at a set level, limiting how much one trade can cost you.
Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.
A stop-loss is the price at which your trade idea is proven wrong. It is usually placed as a stop-order, though some traders use mental stops. The distance from entry to stop, times position size, is your risk-per-trade.
Stops are not optional for most traders because without them a single trade can produce an account-ending drawdown. They do not guarantee the exit price: gaps and trading-halts can fill you far worse.
Example: buy 200 shares at $40 with a stop at $38. Planned risk is $2 x 200 = $400, which is 1% of a $40,000 account.