The unofficial price at which a trader believes time is up to exit a position. Traders don’t actually place the order in advance but watch the market and enter their orders at that market price once the stop price has been hit. In other words, mental stop helps set a limit minder on the quote machine at a specific price. Then, when the price is reached or traded through, the machine will give a signal and the trader can contemplate his next step by monitoring trading activity for a short while. For example, if a given stock hits the mental stop, but the trader sees that it is still in high demand, he would continue to hold it. Otherwise, it would be advisable to sell the stock as it seems it might drop even lower.

Mental stop is also known as a soft stop. It is the opposite of a hard stop.