Stop Loss Strategies

In This Lesson

Where and how to place stop losses effectively.

Duration: 20 min

Overview

Where and how to place stop losses effectively. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

Technical Stops

Place stops beyond support/resistance, trend lines, or pattern failures where thesis is invalidated.

Volatility Stops

Use Average True Range (ATR) to set stops outside normal price movement.

Time Stops

Exit if trade doesn't work within expected timeframe. Dead money has opportunity cost.

Trailing Stops

Adjust stops to lock in profits as trade moves favorably. Protects gains while allowing upside.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Identify the price level where your trade thesis is wrong
2. Calculate normal volatility using ATR indicator
3. Place stop beyond technical level AND outside normal volatility
4. Write down stop level before entering trade - never trade without it
5. Set stop-loss order immediately after entry - remove emotion
6. Review stopped trades weekly - were stops too tight or too loose?

Common Mistakes to Avoid

No Stop Loss

Trading without stops because you "know it will come back" leads to catastrophic losses.

Stop Too Tight

Placing stops inside normal volatility gets you stopped out of good trades repeatedly.

Moving Stops Against You

Widening stops on losing trades to avoid taking losses compounds small losses into disasters.

Key Takeaways

Stop losses are insurance, not admission of failure
The best traders have more losing trades than winners - stops keep losses small
Proper stop placement balances protection with giving trades room to work
Mental stops don't work - emotions override logic when money is at risk
Trail stops on winners to protect profits while maximizing gains

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready