Stop-loss placement

A stop loss only helps if it sits where your trade idea fails. This lesson shows how to find that point on the chart.

The stop marks where you are wrong

← PreviousNext →

Three places people put a stop. Only one of them is based on the chart.

A stop loss marks the price where your reason for being in the trade no longer exists. That gives one rule for placement:

• Buying a bounce from support: stop below the support zone.
• Selling a rejection at resistance: stop above the resistance zone.
• Buying a breakout: stop back inside the range it broke from.

Add a few pips of room beyond the level for spread and noise. Then calculate the position size from that distance, as in lesson 1.

Try it

You have just bought at 1.0810 on the third bounce from support. Tap where the stop loss belongs.

Tap on the chart where you would draw the level.

Inside the zone is too tight; far below it risks more than the idea requires.

Notice how the right stop is the price that disproves the idea.

Once the trade is open

Three rules. Never move the stop further away: that is turning a planned loss into an unplanned one. You may move it closer once the trade has moved in your favour, for example to break-even after price reaches 1R, or trailing it below each new higher low. And if the stop is hit, the trade is over. Re-entering requires a new setup, not a grudge.

Quick check

1. Question 1 of 3

   You buy at resistance that has just broken, expecting it to hold as support. Where does the stop go?

   ABack below the old resistance levelBA fixed 20 pips below entryCJust above entry, to keep risk tiny

Go deeper: Stop losses: where to place them, and why it matters · Trailing stop loss: how it works · ATR Indicator: Average True Range for Stops and Volatility