Trading conceptsUpdated 3 min readBy the FXNOD team
Where to place a stop loss
Place a stop loss at the price where your reason for the trade is no longer valid: beyond the support, resistance or swing point the idea rests on, and far enough away that ordinary movement will not reach it. Then choose the position size so that a stop at that distance costs the amount you decided to risk. The chart sets the stop; you set the size.
Four ways to place it
| Method | Where the stop goes | Suits |
|---|---|---|
| Structure | Beyond the last swing low for a long trade, swing high for a short | Most discretionary trading |
| Level | Beyond the support or resistance zone you are trading from | Bounce and breakout trades |
| Volatility | A multiple of ATR, often 1.5 to 2, from the entry | Any method; adapts to conditions |
| Time | Exit if the trade has not worked after a set period | Short-term methods |
The order of decisions
Find where the idea is wrong
On the chart, before thinking about money.
Add a buffer
Past the wicks, and outside the spread.
Measure the distance
In pips or points.
Set the size
Money at risk divided by the distance.
Check the target
If the next level is closer than the stop, skip the trade.
Mistakes
- Choosing the stop from the amount you want to lose, not from the chart.
- Placing it exactly on an obvious level or a round number, where everyone else's is.
- Setting it tighter than the market's normal movement.
- Moving it further away as the price approaches.
- Moving it to break even too early, and being stopped by noise before the move.
Wide or tight?
A tight stop allows a larger position and is hit more often. A wide stop is hit less often and needs a smaller position. The money at risk is the same either way if you size properly. Prefer the stop that reflects the market's structure, and let the position shrink to fit it.
With a take profit
Place the target at the next opposing level, and compare. A stop of 30 and a target of 60 is a 1:2 trade, which breaks even at a 33% win rate. If the realistic target is smaller than the stop, the trade needs a win rate you probably do not have.
Stops on options and bots
A fixed-payout option has no stop: the stake is the loss. There, the equivalent decision is the stake itself and the session's stop loss. A bot in FXNOD cannot start without a session stop loss, and Multipliers in Trade Pilot let you set a stop loss on the position.
Questions people ask
- How far should my stop loss be?
- As far as the chart requires: beyond the level that invalidates the trade. Then size the position to match.
- Should I move my stop to break even?
- Once the price has moved clearly in your favour, it can protect the trade. Doing it too early gets you stopped by normal movement.
- Is trading without a stop loss ever sensible?
- Only on products where the loss is already capped, such as options. On leveraged positions, no.
Try it without risking money
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