The Stop Loss Dilemma

Place it too tight and you get stopped out before the move. Place it too wide and one loss wipes out five wins. Here's the middle ground.

Where NOT to Place Stops

• At obvious levels — everyone places stops at recent highs/lows. Smart money hunts them.
• At round numbers — 1.1000, 1.1050. Too many stops clustered there.
• At a fixed pip distance — 20 pips on every trade regardless of market conditions.

Where to Place Stops

Behind structure — Below the most recent swing low for longs, above the most recent swing high for shorts. Give it room to breathe. Below/above key moving averages — The 200 EMA is a common reversal zone. Place stops just beyond it. Based on ATR — Use Average True Range to set a stop that accounts for current volatility. A common approach: 1.5x to 2x ATR.

The Golden Rule

Your stop loss should be in a place that, if hit, invalidates your trade thesis. If price reaches your stop, you should be glad you're out — not wishing you had a wider stop.

Position Sizing Connection

Your stop loss distance determines your position size, not the other way around. Wider stop = smaller position. Tighter stop = larger position. The dollar risk stays constant (1% per trade).

Master the stop loss, and you've mastered half of trading.