Stop Loss Placement

&Management
● Author - twitter.com/CryptoCred
● A stop-loss order is an order to close a position at a certain price
point/percentage in order to limit one’s losses.

● As the name suggests, A trader uses a stop in order to limit their losses
where a trade idea is unsuccessful.

● Using a stop loss is an essential pillar of risk management. This is why

any book, webinar, mentorship, guru, and so on will emphasise the
importance of using a stop when trading.

● A poor stop placement and management can cost you a lot of money.

● I think we’ve all been there: a candlewick triggers your stop, knocks you
out of a trade, and price proceeds to hit your exact target but without
you on board. And that feels really bad.

● Therefor today we will discuss five common errors to avoid concerning

stop placement and management.
 1. Not Determining your Stop Placement in Advance

● You should know where your stop is going to be before you open a trade.
The same goes for your entry and target(s).

● As soon as the trade is live and you’re seeing your p&l fluctuate, you’ll find
every single reason in existence to stay in the market.

● The benefit of establish your stop before you open a trade is that it
removes any emotions from the decision, because you haven’t yet risked
any of your capital. You’re simply looking at a chart.

● Additionally, if you don’t have a predetermined stop and the market starts
moving against you with the full threatening force of big candlesticks,
there’s a much higher likelihood that you market close the position without
considering whether your trade idea has actually been invalidated.

● There’s no point ‘winging’ your stop — decide where you’re wrong before
you open a position.
 2. Placing your Stop Based on Random Numbers

● Generally in trading & especially in crypto the market doesn’t care about
your R:R, some magic number 2% away from your entry,or some other figure.

● One of the most critical mistakes you can make is trying to create the
market adjust your frame instead of adjusting your framework to the
market.

● I would love to have some system from where we can get precise stop
placement, But sadly, that's not how trading works.

● Therefore, when it comes to deciding where to place your stop loss, that
decision should be predicated on technical analysis.

● Always remember, Stop placement should not be predicated on some magic

price level which meets a certain percentage or gives you your desired R:R.
The market doesn’t care for that. **Eg** (10k to 10.2k/9.9k)
 3. Moving your Stop to Break Even/Marginal Profit ASAP

● That's a mistake a beginner or even somewhat experience trader makes,

●
● The purpose of a stop is to protect you if your trade idea doesn't work out.

“The purpose of a stop is not to "risk-free" a trade the moment it moves in

your favour.”

● In the previous point, We have already discussed it that your stop should be
based on technical analysis.

● Most people would agree that their stop should be based on technicals, yet
the same people happily move their stop to break even/marginal profit if it
moves in their favour.

This is contradictory.
 3. Moving your Stop to Break Even/Marginal Profit ASAP

● Moving your stop to break even/marginal profit is similar to calculating

your stop placement based on random numbers.

● The market doesn’t care where you entered and where you’re break even.
The moment you arbitrarily move your stop to be “safe” you also abandon a
technical-based approach to the position (unless, of course, your break
even happens to coincide with a technically significant level).

● Why would you abandon or alter your trade idea simply because it locks in
a break even/slight profit?

● The question to ask yourself is this: if I didn't have a position, and price
moved to my break even/marginal profit stop, would I consider that to be a
key area/invalidation level?

● If the answer is a resounding no (as it often is) then you have just
demonstrated that getting out of the trade at that point is a random
decision.
 3. Moving your Stop to Break Even/Marginal Profit ASAP

● Instead, your stop loss should go where you're wrong on your trade idea. If
you're making an entry, you should be able to point and tell

"if price goes above/below X, then my reasons for entering the trade will have been disproved by
the market and then I am almost certainly wrong on my idea".

● In short, Stick to your guns, believe in your original trading plan, and let the
market prove to you that you’re wrong by hitting your original stop loss if it
moves against you.

● Unthinkingly moving to break even all the time is not good example of
trading and effectively abandoning your own technical analysis. That's
sentiments not TA.
 4. Setting your Stop at Pockets of Liquidity

● There are certain price structures that are regularly raided for liquidity
before the market reverses.

● Therefore, avoid placing your stop loss directly above/below: key swing
highs/lows and clean equal highs/lows, because there is a good chance the
market will trade through them before reversing.

● After this discussion you can do this exercise yourself: open a price chart of
the market(s) you trade and mark out the key swing points, range high/lows,
and clean equal highs/lows.

● In most cases you’ll see that price has a tendency to trade through those
structures before moving in the opposite direction. Traders with stops
above/below such structures get knocked out of their positions before the
market continues in their expected direction without them.
 4. Setting your Stop at Pockets of Liquidity

● Here is an example of that structures.

 4. Setting your Stop at Pockets of Liquidity

● How do you protect yourself from being hunted?

● There’s no easy way to do it, which is part of the reason it’s so effective in
every market.

● The short answer is - don’t place your stop in really obvious places.

● So, the least you can do for yourself is to leave some space between your
stop and the structures mentioned before, to allow price to wick through
the high/low without knocking you out alongside it.

● Give it some breathing room (especially if your market spikes often) and
certainly avoid, where possible, leaving your stop right on top/under a
powerful wick.
 5. Never Moving your Stop

● As mentioned in previous points, the purpose of a stop is to protect your

account if your trade idea is incorrect.
However, once the market proves to you that your trade idea may be
accurate as it moves in the expected direction, your stop can be used
protectively to maintain a good R:R as price heads towards target.

● Now, I know we discussed before that one shouldn't move their stop and if
they do its big mistake and always avoid that. But there is a difference here.

● If you blindly move your stop to break even/marginal profit as soon as you
can, that's an arbitrary decision which isn't based on technicals or the
market proving anything to you.

● If you move your stop as the market proves that it’s moving in the expected
direction, then that’s a decision based on technicals and a way to maintain
a good R:R as price heads towards your target.
 5. Never Moving your Stop

● The difference should be clear. What we previously discussed is an

emotional decision to feel “safe”. But in this point right now we are taking
active measures based on technicals to maintain a good R:R as price moves
towards the target.

● For example:

“it is common to start moving one’s stop after a thrust

move/momentum candle in the expected direction in
acknowledgement that buyers/sellers have stepped in at that area,
and that price has no real reason to go back below/above it. This is
quite different from moving to a break even/marginal profit stop as
soon as price moves away from entry.”
5. Never Moving your Stop
 Conclusion

● Don't be arrogant — it's foolish to let a good trade turn into a break even
just because you were waiting for your exact target. The market owes you
nothing, and it doesn't care where your exact target is.

● Be dynamic with your stops as the trade progresses, maintain a reasonable

R:R throughout the trade, and you can still make money without timing the
exact point where the market turns.

● I hope you learned something new and feel more confident using stop
losses.

Thank you