You enter a trade on AAPL at $175.
You think: "This is going to $185. Easy money."
You don't set a stop loss. You're confident. You don't need one.
Price drops to $173. You're not worried. "It'll bounce."
Price drops to $170. Now you're nervous. "It can't go lower."
Price drops to $165. You're panicking. "I need to hold. It has to come back."
Price drops to $155. You're devastated. Your account is down 20%.
Finally, at $150, you can't take it anymore. You sell.
Loss: 14.3% of your account on one trade.
Here's the crazy part:
You had a plan. You were going to exit at $170 if things went wrong.
But when price hit $170, you didn't sell.
You hoped. You prayed. You waited.
And you got destroyed.
If you had set a hard stop at $170:
- Loss: 2.9% (not great, but manageable)
- You'd still have 97.1% of your account
Without the stop:
- Loss: 14.3%
- You only have 85.7% of your account
The stop loss would have saved you 11.4%.
Let that sink in.
Stop losses are not optional. They're survival.
What Is a Stop Loss? (The Simple Definition)
A stop loss is a pre-determined exit point that limits your loss on a trade.
Think of it as insurance.
- You enter a trade
- You set a stop loss
- If price goes against you, the stop automatically exits
- Your loss is capped
Example:
You buy AAPL at $175. You set a stop loss at $172.
Price drops to $172. Your stop automatically exits. Your loss is exactly $3 per share.
No hoping. No praying. No panic.
Just a controlled loss.
Why Most Traders Don't Use Stops (And Why They Blow Up)
Reason #1: "I'll Watch It Manually"
What they say: "I don't need a hard stop. I'll watch the trade and exit if it goes against me."
What actually happens:
- Price drops to their stop level
- They think: "It'll bounce. I'll wait."
- Price drops further
- They think: "It can't go lower. I'll hold."
- Price drops further
- They panic and sell way below their original stop
The hard stop prevents this. The manual "watch" doesn't.
Reason #2: "Stops Get Hunted"
What they say: "The market makers always push price to hit stops. I'll use a mental stop instead."
Reality:
- Yes, stops do get "hunted" sometimes
- But mental stops are worse because you'll move them
- Hard stops force you to take the loss
- Mental stops let you hope the trade back to profitability
Better to get stopped out at $172 than to panic sell at $160.
Reason #3: "I Don't Want to Take a Loss"
What they say: "If I set a stop, I'll definitely take a loss. If I don't set a stop, maybe it'll come back."
Reality:
- Sometimes it does come back (and you feel validated)
- Sometimes it doesn't (and you lose everything)
- Over time, the "come back" trades don't make up for the disasters
Example:
You don't use stops.
Trade 1: Down 5%, you hold. It comes back. You breakeven. You think "Good thing I didn't use a stop."
Trade 2: Down 5%, you hold. It drops to 20% loss. You panic sell.
Net result: -15% over 2 trades.
With stops: You'd have lost 1% on each trade. Total: -2%.
Small losses are survivable. Big losses are not.
Reason #4: "I Don't Know Where to Put It"
What they say: "I know I should use stops. I just don't know where to place them."
Reality:
- They place stops too tight (get stopped out on noise)
- They place stops too wide (risk too much)
- They place stops at random levels (no logic)
This article will teach you exactly where to place stops.
Reason #5: "Stops Are for Amateurs"
What they say: "Professional traders don't use stops. They manage risk in other ways."
Reality:
- EVERY professional trader uses stops
- Institutions have automated risk management
- They're not "better" than stops. They ARE stops (just more sophisticated)
If you don't use stops, you're not a pro. You're a gambler.
The 8 Stop Loss Strategies That Work
Strategy #1: Support/Resistance Stop
Where to place it:
Long trades: Just below support Short trades: Just above resistance
How it works:
If support breaks, your long thesis is wrong. Exit.
If resistance breaks, your short thesis is wrong. Exit.
Example (Long):
AAPL approaching support at $170. Price bounces at $170.10, shows hammer candle. You enter long at $172. Stop at $168.50 (below support). Target: $180.
Risk: $3.50 (2%) Reward: $8 (4.6%) R:R: 2.3:1
Example (Short):
TSLA approaching resistance at $250. Price rejects at $249.80, shows shooting star. You enter short at $248. Stop at $252 (above resistance). Target: $235.
Risk: $4 (1.6%) Reward: $13 (5.2%) R:R: 3.25:1
Why it works:
Support and resistance are proven levels where price reverses. If price breaks through, the trade is invalid. Exit.
Strategy #2: ATR-Based Stop (Volatility-Adjusted)
Where to place it:
Stop = Entry ± (ATR × Multiple)
Multiple is usually 1.5, 2, or 2.5
How it works:
ATR (Average True Range) measures volatility. High volatility = wider stop. Low volatility = tighter stop.
Example:
You're going long on NVDA at $450. ATR (14-day): $6 Multiple: 2
Stop = $450 - ($6 × 2) = $450 - $12 = $438
Risk: $12 per share
If your risk amount is $100 (1% of $10,000 account): Position size = $100 ÷ $12 = 8 shares
Example 2:
You're going long on AAPL at $175. ATR (14-day): $3 Multiple: 2
Stop = $175 - ($3 × 2) = $175 - $6 = $169
Risk: $6 per share
If your risk amount is $100 (1% of $10,000 account): Position size = $100 ÷ $6 = 16 shares
Why it works:
ATR adjusts your stop for current volatility. When the market is calm, your stop is tighter. When the market is wild, your stop is wider.
You stay in trades without getting stopped out on noise.
Strategy #3: Swing High/Low Stop
Where to place it:
Long trades: Below the most recent swing low Short trades: Above the most recent swing high
How it works:
Swing highs and lows are natural reversal points. If price breaks a swing low (in an uptrend), the trend might be ending.
Example (Long):
MSFT in uptrend. Price pulls back to $380, bounces (swing low 1). Price rallies to $400, pulls back to $385, bounces (swing low 2). Price rallies to $420. You enter long at $420. Stop at $384 (below the most recent swing low at $385).
Risk: $36 per share
Why it works:
Swing lows define the uptrend. If price breaks below a swing low, the uptrend is broken. Exit.
Strategy #4: Moving Average Stop
Where to place it:
Stop = Entry ± (Moving Average ± Buffer)
Most common: EMA 20 or EMA 50
How it works:
In an uptrend, the EMA acts as support. Price often pulls back to the EMA and bounces. If it breaks through, exit.
Example (Long):
GOOGL in uptrend, trading above EMA 50. Price pulls back to EMA 50 at $138. Shows rejection candle (hammer). You enter long at $140. Stop at $136 (EMA 50 at $138 minus $2 buffer).
Risk: $4 per share
Example (Short):
AMD in downtrend, trading below EMA 50. Price rallies to EMA 50 at $125. Shows rejection candle (shooting star). You enter short at $123. Stop at $127 (EMA 50 at $125 plus $2 buffer).
Risk: $4 per share
Why it works:
Moving averages are dynamic support/resistance. Many traders watch them. They act as self-fulfilling levels.
Strategy #5: Percentage Stop
Where to place it:
Stop = Entry ± (Entry × %)
Most common: 2-5% below entry
How it works:
Simple fixed percentage. No technical analysis. Just math.
Example:
Account: $10,000 Risk: 1% = $100 Entry: $100 Percentage stop: 3%
Stop = $100 - ($100 × 0.03) = $97
Risk: $3 per share
Position size = $100 ÷ $3 = 33 shares
Why it works:
Simple. Easy to calculate. Consistent.
But: It doesn't account for technical levels or volatility. Use with caution.
Strategy #6: Time-Based Stop
Where to place it:
Not a price level. A time limit.
Exit if price doesn't move in your favor within X time.
How it works:
Your setup: "Price should move within 3 candles."
If it doesn't, exit. Even if you haven't hit your stop.
Example:
You enter a breakout trade. Expected: Price should rally within 3 candles.
3 candles pass. Price is flat.
Exit.
Your thesis was wrong (or weak). Move on.
Why it works:
Capital has an opportunity cost. If price doesn't move, your money is tied up in a dead trade. Better to exit and find a better setup.
Strategy #7: Trailing Stop (Lock in Profits)
Where to place it:
Initial stop: Fixed level (support, ATR, etc.)
Trail: As price moves in your favor, move your stop up
How it works:
You enter long at $175. Stop at $170.
Price rallies to $180. Move stop to $175 (breakeven). Price rallies to $185. Move stop to $180. Price rallies to $190. Move stop to $185.
Price reverses and hits your stop at $185.
Result: You locked in $10 profit per share.
Why it works:
It lets winners run while protecting profits. You don't have to guess the exact top. The trailing stop takes you out when the trend reverses.
Example trails:
Trail by ATR: Stop is 2× ATR below current price Trail by swing low: Stop is below the most recent swing low Trail by percentage: Stop is 3% below current price Trail by candle: Stop is below the last 2 candle lows
Strategy #8: Indicator-Based Stop
Where to place it:
Stop = Entry ± (Indicator Level)
Common indicators:
- Bollinger Bands
- Parabolic SAR
- Supertrend
How it works:
The indicator gives you the stop level. You just follow it.
Example (Bollinger Bands):
You enter long when price bounces off the lower Bollinger Band. Stop: Below the lower Bollinger Band.
Example (Parabolic SAR):
You enter long when Parabolic SAR flips to dots below price. Stop: At the dot. As price rises, the dot rises (trailing stop).
Why it works:
Indicators are systematic. No emotion. No guessing. Just follow the dots.
The 10 Stop Loss Rules You Must Follow
Rule #1: Always Use a Hard Stop
Set your stop in your broker.
Not just on your chart.
Hard stops execute. Mental stops don't.
Rule #2: Set Stops Before You Enter
Never enter a trade without knowing your stop.
Calculate position size based on the stop.
Then enter.
Rule #3: Never Risk More Than 1%
Your position size calculation:
Position Size = (Account × 1%) ÷ Stop Distance
If this results in too large a position, reduce your risk.
If this results in too small a position, don't enter.
Rule #4: Give Your Stop Room to Breathe
Don't set stops too tight.
If ATR is $3, don't set your stop $2 away.
You'll get stopped out on noise.
Give the trade room to work.
Rule #5: Don't Set Stops Too Wide
Wide stops = large risk.
If your stop is 10% away, you can't take the trade.
Wait for a better setup with a tighter stop.
Rule #6: Place Stops at Logical Levels
Support, resistance, swing highs/lows, MAs.
Not random numbers.
Not round numbers.
Logical technical levels.
Rule #7: Never Move Stops Away From Market
You can trail stops as price moves in your favor.
But never move a stop away from the market to avoid taking a loss.
Never.
Rule #8: Trail Stops Systematically
Have a trailing rule.
Don't trail randomly.
Examples:
- Trail when price hits 1:1 R:R
- Trail when price hits the next S/R level
- Trail by ATR as price moves in your favor
Rule #9: Accept Stop Outs as Normal
You will get stopped out. Often.
It's part of trading.
Don't get angry. Don't revenge trade.
Just accept it and move to the next trade.
Rule #10: Review Your Stops
Are your stops too tight? (Getting stopped out too often)
Are your stops too wide? (Risking too much per trade)
Review weekly. Adjust as needed.
Stop Loss Placement Examples (Real Scenarios)
Example #1: Long Trade at Support
Setup: AAPL at support
Chart:
- Support at $170 (tested 3 times)
- Price drops to $170.50
- Shows hammer candle
- Volume increases
Your plan:
- Entry: $172 (on break of hammer high)
- Stop: $168.50 (below support)
- Target: $180
Calculations:
- Stop distance: $172 - $168.50 = $3.50
- Account: $10,000
- Risk: 1% = $100
- Position size: $100 ÷ $3.50 = 28 shares
Result:
- Investment: 28 × $172 = $4,816
- Max risk: $98 (0.98% of account)
- Max reward: 28 × ($180 - $172) = $224 (2.24% of account)
- R:R: 2.3:1
Example #2: Short Trade at Resistance
Setup: TSLA at resistance
Chart:
- Resistance at $250 (tested 4 times)
- Price rallies to $249.50
- Shows shooting star candle
- Volume increases
Your plan:
- Entry: $248 (on break of shooting star low)
- Stop: $252 (above resistance)
- Target: $235
Calculations:
- Stop distance: $252 - $248 = $4
- Account: $10,000
- Risk: 1% = $100
- Position size: $100 ÷ $4 = 25 shares
Result:
- Investment: 25 × $248 = $6,200
- Max risk: $100 (1% of account)
- Max reward: 25 × ($248 - $235) = $325 (3.25% of account)
- R:R: 3.25:1
Example #3: ATR-Based Stop (High Volatility)
Setup: NVDA with ATR stop
Chart:
- NVDA trading at $450
- ATR (14-day): $12
- You want to go long
Your plan:
- Entry: $450
- Stop: $450 - ($12 × 2) = $426
- Target: $480
Calculations:
- Stop distance: $450 - $426 = $24
- Account: $10,000
- Risk: 1% = $100
- Position size: $100 ÷ $24 = 4 shares
Result:
- Investment: 4 × $450 = $1,800
- Max risk: $96 (0.96% of account)
- Max reward: 4 × ($480 - $450) = $120 (1.2% of account)
- R:R: 1.25:1
Note: High volatility (wide stop) = smaller position size needed to keep risk at 1%.
Example #4: Trailing Stop (Locking in Profits)
Setup: Long trade with trailing stop
Initial plan:
- Entry: $175
- Initial stop: $170
- Target: $190
As trade progresses:
Price reaches $180:
- Move stop to $175 (breakeven)
- Locked in: No loss, no gain
Price reaches $185:
- Move stop to $180
- Locked in: $5 profit per share
Price reaches $190:
- Move stop to $185
- Locked in: $10 profit per share
Price reverses to $185:
- Stop hit at $185
- Final result: $10 profit per share
Why trailing stop worked: You didn't have to guess the exact top at $192. You let price tell you when the trend ended (when it broke back below $185).
Common Stop Loss Mistakes to Avoid
Mistake #1: Stops Too Tight
Your stop is $1 away from entry in a $3 ATR market.
You get stopped out immediately.
Fix: Use ATR to set stops. Give the trade room to breathe.**
Mistake #2: Stops Too Wide
Your stop is 15% away from entry.
To keep risk at 1%, you can only take a tiny position.
Or you risk way too much.
Fix: If the stop is too wide, skip the trade. Wait for a better setup.**
Mistake #3: No Hard Stop
You have a "mental stop" at $170.
Price hits $170. You don't exit. You hope.
Price drops to $160. You panic and sell.
Fix: Always set a hard stop in your broker.**
Mistake #4: Moving Stops Away
Your stop is at $170. Price is at $171.
You think: "It's about to reverse. I'll move my stop to $165."
Price drops to $165. Then to $160.
You lose way more than planned.
Fix: Never move stops away. You can trail stops as price moves in your favor, but never away.**
Mistake #5: Not Trailing Stops
You enter at $175. Stop at $170.
Price rallies to $190. You're up big.
You don't trail your stop.
Price crashes back to $172. Your stop takes you out at $170.
You gave back all your profit.
Fix: Trail stops as price moves in your favor. Lock in profits.**
The Stop Loss Mindset Shift
Old Mindset: "Stops Are for Losers"
You think:
- "If I set a stop, I'll definitely lose."
- "I'd rather hold and hope it comes back."
- "Stops are for weak traders."
Reality:
- Stops prevent disasters
- Hope is not a strategy
- Professional traders all use stops
New Mindset: "Stops Are Insurance"
You think:
- "Stops protect my account from blowups."
- "Small losses are the cost of doing business."
- "Every stop is a lesson. Move on to the next trade."
Reality:
- Stops keep you in the game
- Consistent small losses are survivable
- You live to trade another day
Your Stop Loss Action Plan
This Week:
- Review your last 20 trades
- Did you use hard stops? (YES/NO)
- Were your stops too tight or too wide?
- Commit to using hard stops on every trade
This Month:
- Use support/resistance stops on your trades
- Experiment with ATR-based stops
- Trail stops when price moves in your favor
This Quarter:
- Master 2-3 stop loss strategies
- Track which strategies work best for you
- Never enter a trade without a hard stop
Key Takeaways
- Stop losses are insurance - they cap your loss and prevent disasters
- Always use hard stops - set them in your broker, not just on your chart
- 8 stop strategies that work - support/resistance, ATR-based, swing high/low, moving average, percentage, time-based, trailing, indicator-based
- Support/resistance stops - place stops just beyond key levels
- ATR-based stops - stop = entry ± (ATR × 2), adjusts for volatility
- Swing high/low stops - below swing lows for longs, above swing highs for shorts
- Moving average stops - use EMA 20 or EMA 50 as dynamic stop
- Trailing stops - move stops up as price moves in your favor, lock in profits
- Never risk more than 1% - position size = (account × 1%) ÷ stop distance
- Give stops room to breathe - don't set stops too tight or you'll get stopped on noise
- Never move stops away - you can trail stops toward the market, never away
- Accept stop outs as normal - you will get stopped out, it's part of trading
- Review your stops - are they too tight? too wide? adjust as needed
Stop losses are not optional.
They're the difference between surviving and blowing up.
They're the difference between a trading career and a trading catastrophe.
They're the difference between professional and amateur.
Set your stop before you enter. Never move it away. Accept the loss when it hits.
Your account will survive. Your trading will improve. Your future is secure.
ChartMini automatically calculates optimal stop loss levels based on ATR volatility, sets hard stops in your broker, trails stops as price moves in your favor, and alerts you when stops are approached so you never blow up your account on one trade.