Where to set your stop-loss — and leave it

Q: How far out should the line be?

That question points the wrong way. The line is not a distance. It is a position — and that position was decided beforehand by the method you are using, not by you in the moment. Different ways of entering work the line out differently. Change the method and the calculation changes with it. So "how far" has no general answer — the method is what has the answer. There is also this: if the conditions change first, you do not wait for the line to be hit. You leave early and lose less. So the real question to ask yourself is: does the way I trade now tell me where the line is? If you judge how far it goes on the spot every single time — that is the reason you will move it later.

"Where to set it" is not the hardest question

Search this question and what comes back is all about position: the previous low, a percentage, a number some indicator works out.

None of those answers is wrong. But they are answering the first question, and most people lose on the second.

A stop-loss — your line — is one sentence: at this point I take the loss, and once I have, I leave.

That sentence is not hard to understand. What is hard is still doing it three months later.

And there is something else most people have not thought about: the position of the line is not something you decide in the moment. The method you use decided it beforehand. Different ways of entering work the line out differently — change the method and the calculation changes with it.

Also, you do not always have to wait for the line to be hit. Sometimes the conditions change first, and then you leave early and lose less.

Why you move it

Teddy has lost seven figures of his own money. He has said the biggest single reason was not reading the direction wrong — it was moving the line, again and again.

Moving the line usually happens at one of three moments. Every one of them sounds reasonable:

One

"It almost came back"

The price is grinding along the line, and giving it a little more room feels like it would come back. Sometimes it does — and that time is worse, because it teaches you to do the same thing next time.

Two

"This time is different"

There is a reason. News, a pattern, a feeling. Before you entered you did not have this reason. After you entered, it showed up.

Three

You cannot bear it

This is not analysis. It is not wanting to admit it. Move the line down and that trade is not dead yet.

What the three have in common: all of them happen after you have entered. At that point you are not looking at the chart. You are looking at a number moving.

The three real reasons people lose money are written here: Why traders keep losing: three real reasons

What happens after you move it

That trade is no longer the trade you worked out.

When you entered, you worked out the most you could lose. Move the line and that number is void — what you are losing now is a different number, one you never worked out.

And you can no longer test the method. Across three months of records, if every trade had its own line, that is the record of one method. If every trade had a different line, it is just a pile of separate events.

Hold the line and you are testing the method. Move the line and you are testing your mood.

How to stop yourself moving it

Not with willpower. With deciding earlier.

One

Write it down before you enter

Where the line is, written in the journal, not held in your head. The one in your head changes by itself when you get to that moment.

Two

Give it a column in the journal

The three columns we keep coming back to — whether all three lined up in that moment, whether you did what you said you would, and where the judgement went wrong when you look back. Whether you moved the line sits in the second column.

Three

If you moved it, write that down too

Move it without recording it and in three months you are looking at a false report card. Record it and you will quickly see that one line repeating — and that is the thing to fix.

How to keep the three columns is written here: How to keep a trading journal: three columns are enough

Common questions

How far out should the line be?

That question points the wrong way. The line is not a distance. It is a position — and that position was decided beforehand by the method you are using, not by you in the moment. Different ways of entering work the line out differently. Change the method and the calculation changes with it. So "how far" has no general answer — the method is what has the answer. There is also this: if the conditions change first, you do not wait for the line to be hit. You leave early and lose less. So the real question to ask yourself is: does the way I trade now tell me where the line is? If you judge how far it goes on the spot every single time — that is the reason you will move it later.

The line keeps getting hit. Did I set it too close?

Possibly, but do not rush the conclusion. Look at the journal first. Several trades in a row that reverse the moment the line is hit — that is a position problem, and it can be adjusted. Only this one trade — that is usually just this one trade. One trade is not data.

Can I move the line in my favour?

That is a different thing — moving the line towards profit, to lock in part of what is already there. This article is about moving it towards the loss. That one, do not do.

How much capital do you need to take the line being hit?

The answer is not in the amount, it is in something else: trade with money that hurts to lose and your judgement bends — and once your judgement bends, the line gets moved. It is written here: How much capital do you need to trade the Nikkei?

Where to set the line, you can learn in an afternoon. Setting it and not moving it takes three months to prove. The first question is knowledge. The second one is you.

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We do not guarantee returns. We do not trade on anyone's behalf. This is market education, not personal investment advice. Working through this properly takes at least three months of sustained effort. Markets carry the risk of loss — decide what you can afford to risk before you begin.

Where to set your stop-loss?