Using a Predefined Stop Loss: A Disciplined Approach to Risk Management
Trading with a predefined or agreed-upon stop loss is a smart and disciplined way to control risk. It involves deciding in advance the maximum amount you're willing to lose on a trade and setting a stop-loss order accordingly. Here's a step-by-step guide to doing it effectively:
1. Define Your Risk Per Trade
Determine how much of your trading capital you're willing to risk on a single trade—typically 1-2%.
Example:
If you have a $10,000 account and choose to risk 1%, your maximum loss per trade is $100.
2. Analyze the Market and Identify an Entry Point
Use your trading strategy—whether technical, fundamental, or a combination—to find a strong setup and a suitable entry point.
3. Set a Logical Stop-Loss Level
Place your stop loss at a point where your trade thesis would be invalidated—not just at a random price.
• For long positions: below a key support level
• For short positions: above a key resistance level
4. Calculate the Position Size
Once you’ve determined your risk amount and the distance between your entry and stop loss, calculate the appropriate position size.
Example:
• Risk per trade: $100
• Stop loss distance: $0.50
• Position size: $100 ÷ $0.50 = 200 shares
5. Enter the Trade with the Stop Loss in Place
Use a stop-loss order when placing the trade, or set it immediately after entering. This helps automate your risk control.
6. Stick to the Plan
Resist the urge to move your stop loss further away—it undermines your discipline. You can adjust it closer or to breakeven if the trade goes in your favor.
---
If by “agreed stop loss” you meant a stop loss determined in collaboration with a trading partner, mentor, or signal provider, let me know and I’ll tailor the explanation for that context.
#StopLossDiscipline #RiskManagement
Let me know if you want this turned into a graphic or carousel post.