Stop-loss order is the most effective way to manage potential risk in financial markets. There are multiple ways to control the downside. The most basic one is to use fixed percentage-based amount.
for example 10%. In this case if you are planning to buy stock worth 1000 USD your stop-loss will be equal to 100 USD. Many hedge funds are incorporating in their systematic strategies stop-loss calculated by taking volatility to consideration. For example if one is trading stock index like SP500 all it takes is to set the stop-loss by using value of indicator called average true range. This simple tool tells traders how much an instrument is moving on average within the time frame of choice. More subjective way to control the risk is taking recent market structure into consideration.