How to Set Stop-Loss Correctly

Master risk management with proper stop-loss placement strategies.

What is Stop-Loss? 🤔

Definition: Automatic order that closes your position when price hits predetermined level.

Purpose: Limit losses and protect capital from major drawdowns.

Key Stop-Loss Methods 📊

1. Percentage-Based 📈

Rule: Set stop at fixed % below entry
• Conservative: 2-5% for BTC/ETH
• Aggressive: 8-15% for altcoins
• Day trading: 1-3%

Example: Buy BTC at $50,000, set stop at $47,500 (5%)

2. Support/Resistance Levels 📉

Rule: Place stop below key support (long) or above resistance (short)
• More logical than arbitrary %
• Respects market structure
• Higher success rate

Example: Buy at $50,000, support at $48,000, set stop at $47,800

3. ATR (Average True Range) 📏

Rule: Use volatility to determine stop distance
• 1.5-2x ATR below entry
• Adapts to market conditions
• Prevents whipsaws

4. Technical Indicators 🔧

Rule: Use MA, Bollinger Bands, or trend lines
• Stop below 20 EMA for trends
• Outside Bollinger Bands
• Below rising trend line

Stop-Loss Best Practices ✅

DO:
✅ Always use stop-loss
✅ Set before entering trade
✅ Place outside market noise
✅ Consider volatility
✅ Give room to breathe

DON'T:
❌ Move stops against you
❌ Set too tight (constant hits)
❌ Set too wide (big losses)
❌ Remove during drawdown
❌ Use round numbers only

Advanced Tips 💡

Trailing Stop 🏃

What: Stop follows price, locking profits
When: Strong trending markets
How: Set 5-10% trail distance

Multiple Exits 📊

Strategy: Scale out positions
• 50% at 2:1 R/R
• 30% at 3:1 R/R
• 20% trail remaining

Market Conditions 🌪️

Bull Market: Wider stops (8-12%)
Bear Market: Tighter stops (3-6%)
Sideways: Use range levels

Common Mistakes ⚠️

❌ Stop hunting zones: Avoid obvious levels
❌ Emotional moving: Stick to plan
❌ Too mechanical: Consider context
❌ No stop at all: Recipe for disaster

Quick Setup Guide 🚀

1. Identify entry point

2. Find nearest support/resistance

3. Calculate risk (1-2% of capital)

4. Set stop 2-5% beyond key level

5. Confirm risk/reward ratio

Remember: Stop-loss is insurance, not a guarantee of profit!

Risk management is key to long-term success. Never trade without stops.