Where to put the stop
Intermediate · 1 min
Put it where the reason you bought stops being true.
The common mistake is picking a round number, or whatever loss feels bearable. Both ignore the share. A stop should sit at the price that would tell you the idea behind the trade has failed.
- If you bought because the price bounced off a floor it has held before, the stop goes a little below that floor. Below, not at it — these are areas, not exact numbers.
- If you bought because the price broke out above a ceiling, the stop goes back below that ceiling. If it has fallen back through, the breakout did not hold.
- If you cannot say what would prove you wrong, you do not have a reason for the trade. That is worth finding out before you place it, not after.
Once the stop is chosen, the size follows from it rather than the other way round. A stop that is far away is not a reason to take a bigger loss — it is a reason to buy fewer shares.
Try this in the app
- Position size calculator — turn a stop into a number of shares
Share this lesson
Works with
- How much to put in one trade — Decide what you can afford to lose first, and let that set the size.
- Support and resistance — Prices where a share has repeatedly stopped falling, or stopped rising.
- Key points and breakouts — Some prices matter more than the rest, and a share that clears one is telling you something.
- Trading a hammer — Enter on the confirming close, put the stop under the hammer's low, and size the trade so that stop costs what you planned.