Where you place your stop-loss matters more than whether you set one. Place 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, making it suitable for beginners
and helps build discipline. The downside is that it ignores market structure, so your stop might land right in a cluster of other traders’ stop-losses.
【Technical-level stop-loss method】Place it where the structure becomes invalid: for a long position, below key support; for a short position,
above resistance. The logic is: if the price breaks through this level, that’s evidence I was wrong.
Use the stop-loss distance to adjust your position size: the farther away the stop, the smaller the position, so the loss on any single trade stays at
1%-2%. This is the correct order: determine position size based on the stop-loss level.
【The combination I use most often】Use technical levels to determine direction and the invalidation point; use position sizing to protect your capital. When you combine the two, you'll
find that trades with wider stops should naturally have smaller positions, while trades with tighter stops can use somewhat larger positions.
Never reverse the order—setting your position size first and then looking for a stop-loss is the root cause of most people's losses.
What do you think? Share your experiences in the comments.