Where you place your stop-loss matters more than whether you use one. Set it too close and you’ll get stopped out every day; too far away and one loss can really hurt.
[Fixed-percentage method] For example, exit whenever you lose 1%–2% of your capital. It’s simple and straightforward, and suitable for beginners
to build discipline. The drawback is that it ignores market structure, so your stop might end up right where other traders’ stops are clustered.
[Technical-level stop-loss method] Place it where the structure becomes invalid: below key support for a long position, and
above resistance for a short position. The logic is—if this level breaks, that’s evidence I was wrong.
Adjust position size accordingly: the wider the stop-loss distance, the smaller the position, so the loss on any single trade stays at
1%–2%. This is the correct order: set your position size based on your stop-loss level.
【The combination I use most】Use technical levels to determine direction and the invalidation point; use position sizing to protect your capital. Put the two together, and you
will find that trades with wider stops should naturally have smaller positions, while trades with tighter stops can accommodate slightly larger positions.
Never reverse the order: setting your position size before finding your stop-loss is the root cause of most people’s losses.
What do you think? Share your experience in the comments.