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When I first started trading, I didn’t even think about stop-loss orders. I’d jump into a setup, full of hope and adrenaline, thinking, “This thing’s going to run.” And sometimes it did — but other times, I got smoked. That’s when I realized: it’s not just about how much you can make. It’s about how much you’re willing to lose.

Let’s talk about what a stop-loss really is, how I set mine, and why it’s become the foundation of my trading strategy.

What Is a Stop-Loss Order in Trading?

If I had to define it in plain terms, a stop-loss is just the price level where I tap out of a trade.

It’s not there to limit my gains — it’s there to cap my risk. And that’s huge. Because in trading, you’ll never be able to predict how high a stock will go. But you can control how far you’re willing to let it drop before calling it quits.

A stop-loss can be a manual mental exit or an automated order placed with your broker that sells your position once the price hits a certain level. It’s one of the most essential tools for traders, especially in volatile markets where moves can reverse quickly.

You never know how much a stock is going to go up, but you can control how much you’re willing to lose.

Two Ways I Set a Stop

There’s no one-size-fits-all stop-loss. Over the years, I’ve used two main methods, and each one has its place depending on the setup and market conditions.

Arbitrary (Fixed Risk) Stop

Sometimes, I’ll use what I call a mental stop. I will set an arbitrary mental stop that is like 15 or 20 cents from your entry. With a thousand shares, that’s $150 to $200 in risk.

I don’t place this stop randomly. It’s based on what I’m comfortable losing on that trade. This method works well in fast-moving markets when I need to make quick decisions and manage risk with precision.

Technical Stop Below Support

Other times, I base my stop on the most recent support level on the chart. The second way is to set a stop that isn’t arbitrary but based on the most recent support. If I enter at $4.50 and support is sitting at $4.35, I’ll give it just a little breathing room and place my stop at $4.33.

That way, I’m staying in as long as the support holds. If support holds, you keep holding. But if support breaks, you cut your losses.

That’s been my rule. If the trade setup breaks down technically, I don’t argue with it. I get out.

Now, here’s the catch: if support is too far below your entry — like 50 cents or more — you’re probably chasing the move. That’s a red flag that I’m getting in too late.

How I Decide Where To Set My Stop

There are a few things I run through mentally before entering a trade. First, I ask myself: how far is support from where I’m getting in? If it’s too wide, I either size down or skip the trade altogether.

I’ll also check how extended the move is. If I’m buying the top of a candle with no clean support nearby, there’s a good chance the trade won’t work. That’s when I pause and reassess.

Is the Setup Too Extended?

If the chart is already extended and the next clean support is far below, that’s a red flag. I don’t want to chase a move just because it’s running. If my stop needs to be 50 cents down, I might be getting in too high.

Is Support Close Enough To Justify the Risk?

I’m always calculating risk/reward. If support is too far, and the reward isn’t worth it, I pass. But if there’s a clean level I can use just below my entry, that’s when I feel confident taking the trade.

Why I Always Use a Stop

Let me be blunt: if you’re trading without a stop, you’re gambling.

Stops are non-negotiable for me. They’re not just a risk management tool — they’re my safety net. I’ve seen what happens when traders refuse to cut a loss. It spirals. You freeze. And then the account takes a hit that’s hard to recover from.

Here’s why I always use a stop:

  • It protects my account: No single trade should wipe me out.
  • It enforces discipline: I stick to my plan, win or lose.
  • It removes emotion: I don’t hesitate when it’s time to cut.
  • It keeps me consistent: I can trade another day with a clear head.

The best stop is just below support, because that’s when the trade breaks down. I’ll take small losses all day long. That’s how I protect my buying power and my confidence.

A Quick Example From My Trading

Let’s say I enter a stock at $4.50. It just pulled back to support around $4.35, and that level’s been holding well. I give it a little space — I place my stop at $4.33.

That way, I’m not getting shaken out by a minor dip, but I’m also not leaving myself wide open. If it holds and curls, great. But if it breaks, I’m out — no questions asked. If support breaks, I cut my losses. That rule has saved me more times than I can count.

Final Thoughts on Using a Stop-Loss

I don’t win every trade, and I don’t need to. What keeps me consistent is knowing exactly where I’ll get out before I get in. That’s the difference between guessing and trading with intent.

The only thing I can control is my risk — and that’s where the stop comes in.

If you’re ready to stop trading emotionally and start trading with a plan, this is where it begins.

Ready to trade with confidence and control? Join me live at Warrior Trading and learn the exact strategies I use every day, with stop-loss rules that keep me in the game.