Where Should You Put Your Stop Loss? 3 Common Methods and the Mistakes Beginners Make
A stop that is too tight gets taken out by normal noise; a stop that is too wide loses too much in one trade. This guide covers 3 common ways to place a stop loss and the 4 mistakes beginners make most.
The stop loss is the most important step in trading and the one most often skipped. Too tight and normal swings knock you out; too wide and one loss wipes out several wins. Here are 3 common ways to place it.
Method 1: beyond support or resistance
When buying, place the stop below the nearest support. When selling, place it above the nearest resistance. The logic is simple: if price cannot hold support, the reason for buying no longer holds.
Leave some room. Support is a zone, not a line, and a stop sitting right on it is easily taken out by a brief poke through.
Method 2: beyond the last swing low or high
When buying, place the stop below the most recent clear swing low. When selling, place it above the most recent clear swing high. In a trend, breaking the last low means the uptrend structure may be damaged, so getting out there makes sense.
Method 3: decide the money at risk first, then size the trade
Decide the most you will lose on the trade, for example 1% of the account, then work out the lot size from the stop distance. The stop level still comes from the chart, but the lot size adjusts to the stop distance, not the other way round. Do not squeeze the stop tight just to trade bigger. For how to calculate lot size, see the gold trading basics guide.
4 mistakes beginners make most
- No stop at all: hoping it comes back, while the loss keeps growing
- Moving the stop further away when losing: a stop that keeps moving is no stop
- Squeezing the stop to trade bigger: stopped out before the move starts, and many small losses add up
- Placing it exactly on a round number or obvious level: many stops sit there, so they often get taken out together
Have a target as well
The stop decides how much you lose if you are wrong; the target decides how much you make if you are right. Many traders want the target to be at least 1.5 to 2 times the stop distance, so that even with a win rate below half they have a chance to break even or profit over time.
Every Borearis swing signal comes with an entry, a stop loss and targets, so you can compare them with your own placement. To get notified when price hits your stop or target, download the Borearis app.
Borearis Research Team · For information only, not investment advice. Trading involves risk.
