Stop-loss: deciding where you are wrong

Summary

A stop-loss is the price at which you accept the idea did not work and close the trade. A good one is placed where the reason for the trade no longer holds — for example just beyond a level that should have held — not at a random distance. Moving a stop further away to avoid a loss turns a small, planned loss into a large, unplanned one.

Key points

• A stop marks the price where your idea is proven wrong.
• Place it at a level that matters, not at a random distance.
• Moving it further away to avoid a loss usually makes the loss bigger.

Check yourself

Where is a stop-loss best placed?

Practice