Where Should I Place My Stop Loss?: The Myth

“HT, HT, Where should I place my stop?” 

“Here?”,  “Or there?” , “Where?” 

This is a common question I get asked a lot. Therefore, in this blog, I’ll explain and share the truth about stop losses and the best place for them. But, If you are looking for that perfect spot, this blog isn’t for you as the truth is, there is no perfect area to put your stop loss. 

If you are like me when I first started out, then you are probably hopping from room to room looking for the guru who has the information that will lead to “perfection.” 

Nick Murray once quoted “Timing the Market is a fool’s game whereas time in the market is your greatest natural advantage” 

If you are struggling a lot with finding entries, stops, and exits and getting down on yourself, this frustration is because you are looking for perfection. Stop looking for perfection. This is the best decision I ever made as it led to my performance drastically improving. Every entry, exit and stop that I have placed has always been off in some way or the other yet I still profit. [Profit with me here]

“Stop Looking for Perfection” – Shay

Furthermore, perfectionists always operate at the expense of everyone else. In this case, yourself. Watch here my video on my BIGGEST loss and what I learned from it. 

Where NOT to place your stop?

A lot of gurus will perhaps tell you to place your stops a few ticks above or below ATR (Average True Range Indicator), below support or above resistance, etc. But, these are all flawed. The reason is, it doesn’t factor in the expected return of the trade.

“Have you ever placed 3 winning trades in a row to later take 1 loss that wiped out all the capital gains you have worked so hard to make?”

This is what we call unknown risk and it is primarily due to placing your stop in those areas. Hedge funds managers refer to this as trading upside down as your risk becomes greater than your expected return. 

Where to place my stop?

Now that we have covered the mindset and where to NOT place our stops, let’s look at where to place our stops. 

Placing your stop loss has nothing to do with the technicals of the market. Your stop loss should be placed where it is equivalent to the amount you are comfortable losing based on the potential reward due to the range. 

Therefore, after you have identified the expected return of a trade based on the range, decide on the number of shares you want to trade, you should ask yourself, “based on the expected return, how much am I comfortable losing?” I personally just divide the expected return by 3 as I want to be properly compensated for my risk. 

This is the best way to place your stop as it will prevent you from having 1 loss that will set you back days, weeks, or maybe months of hard work.

Where have you been placing your stop loss? Comment below I’d love to hear it.