A stop loss is a risk management tool that keeps your losing trades small. The point of a stop loss is defensive and to eliminate big losses from your trading. 

Here are ten tips for thinking about when placing a stop loss on a trade:

  1. Your stop loss should be a part of your trading plan on entry not figured out later. 
  2. The best time to set a stop loss is before you get emotionally wrapped up in the outcome of a losing trade. 
  3. A stop loss should be placed at a price level that price shouldn’t go to if the trade is going to work out in your favor. 
  4. A stop loss should be placed at a key technical level not based on an opinion.
  5. It is better to set a stop loss based on a meaningful price level not just at a flat percentage of loss from entry. 
  6. A stop loss should be set first then position size based on the size loss you want if it is hit. 
  7. Set your stop at a level that has a low probability of being triggered to increase your odds of success. 
  8. The best stop loss is taken when first triggered not holding and hoping, if you don’t follow your plan then you aren’t really managing risk or staying disciplined. 
  9. The longer you wait to stop your loss the harder it is to eventually exit later. 
  10. The farther your stop loss is from your entry price the smaller your position size should be. 
Stop loss
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